What is a cold wallet?
A cold wallet (English: Cold Wallet) is a cryptocurrency wallet used to store personal cryptocurrency keys offline. Investment website Bankrate pointed out that the usual application mode of cold wallets is to store them on a physical device, so it is often called a "hardware wallet."
In other words, cold wallets do not connect to the Internet like hot wallets, but instead exist in the form of physical devices (such as USB drives or special hardware devices), which can effectively protect the keys from Hacking attacks on the Internet or theft of virus software.
How cold wallets work
The general cryptocurrency transaction process will record the established transaction on the blockchain to become a unique "transaction ledger" that cannot be tampered with. And if the currency you purchase belongs to a public blockchain (public chain), you can check it through the key after connecting to the Internet, and then use this transaction ledger.
Logically speaking, no single entity in the world can manage your ledger except yourself. However, when you use the Internet to connect to your cryptocurrency account, online hackers or malware may use a variety of technologies to read your account and steal your crypto assets. Cold wallets are This risk can be avoided.
Investment website Bankrate explains that the working principle of a cold wallet is to store your key in an offline device. Whenever you want to make a transaction, you have to connect to the Internet through this unique device to read it. Some cold wallet devices also have the function of memory and can be used for transactions without being connected to the Internet. Such cold wallets can be connected by scanning codes, USB, Bluetooth, or using cold wallet Apps. Cryptocurrency asset trading.
Why do cryptocurrency transactions require cold wallets? 3 benefits of using cold wallets
Cold wallets are a way to protect assets and allow users to keep cryptocurrency assets in a safer way. Especially for users who have a large amount of encrypted assets or who value the security of their assets, cold wallets are an indispensable tool.
We have compiled the following benefits of using cold wallets to manage cryptocurrencies:
Improved security: Cold wallets store private keys on offline physical devices, greatly reducing the risk of being attacked by online hackers. This is especially important for users who want to store large amounts of cryptocurrency or assets for a long time.
Avoid exchange risks: Using cold wallets can avoid storing cryptocurrency in exchange accounts and avoid losing assets due to problems such as the exchange being hacked or the exchange going bankrupt.
Conducive to long-term storage: For those users who do not frequently trade but also want to safely protect their assets, storing money in a cold wallet will eliminate the need to worry about the safety of their assets in the long run.
What is the difference between cold wallet and hot wallet?
Compared with cold wallets, which store keys on hardware devices, hot wallets (English: Hot wallets) are cryptocurrency wallets that use online storage. The keys of hot wallets are usually stored on the server, so they are more convenient to access and use. However, because they need to be connected to the Internet, the security risks of hot wallets are much higher than that of cold wallets.
You can get a preliminary understanding of the differences between these two cryptocurrency wallets from the following table:
Comparison between cold wallet and hot wallet
Features Cold Wallet Hot Wallet Storage Method Offline Online Security High Low Convenience Low High Applicable Scenario Long-term Storage Daily Transactions Common Types Hardware Wallet, Paper Wallet Exchange Wallet, Mobile Wallet, Web Wallet
Source: Investopedia
Source: "CryptoCity" Chart Comparison of cold wallets and hot wallets
It is not difficult to find from the table that cold wallets and hot wallets are two ways to store cryptocurrency, and each has its own characteristics and applicable scenarios. Crypto City simply summarizes the main differences between the two wallets, as well as the appropriate usage methods:
Internet connection status: The cold wallet does not need to be connected to the Internet, so the key will not be exposed to the network environment, which improves the security of using the wallet. Hot wallets are often connected to the Internet and are more convenient to use, but they also increase the risk of attacks.
Security: Cold wallets can effectively protect against hacking attacks and other cyber threats. Although hot wallets are convenient for daily transactions, because they are connected to the Internet, they are more susceptible to hacking attacks, malware, and phishing attacks.
Applicability: Cold wallets are suitable for long-term storage of large amounts of cryptocurrency, especially assets that do not require frequent transactions. Hot wallets are more suitable for daily transactions and users who need to access assets quickly. Connections and transactions are more immediate.
User experience: The technical knowledge required to use a cold wallet is higher because its functions need to be set; if you want to use a cold wallet for transactions, you need to get a physical device before you can do the transaction, and it has fewer functions. Hot wallets are generally user-friendly and easy to set up, and are suitable for users who frequently conduct small transactions or have large liquidity.
What are the types of cold wallets?
There are several common main types of cold wallets. We have compiled the following information so that you can understand more deeply:
paper wallet
Paper wallet is a simple form of printing the cold wallet address and key on paper. It usually contains a set of QR Code. It is a low-cost cold wallet storage method and only needs to be photocopied.
However, the disadvantages of paper wallets are also obvious that they are difficult to save, and only wallets usually only support one type of cryptocurrency, and the process of depositing and withdrawing funds may also be cumbersome.
Source: Block Potential
Hardware wallet
A hardware wallet is a physical device, similar to a USB drive, used to store cryptographic keys offline. Hardware wallets are popular for their high security and user-friendly interface. They usually support multiple cryptocurrencies and are suitable for users with a diversified investment portfolio.
Image source: OneKey
sound wallet
Sound wallet is an innovative storage method, which has not yet become a popular cold wallet type. The voice wallet encrypts the key or annotation into a human voice file, and uses the uniqueness of the voiceprint to ensure that the password cannot be copied or stolen.
This type of wallet will store the key on a record, CD or other audio storage device. It may be more complicated to use, but it is also relatively safe.
Deep cold storage
Deep cold storage is an extremely secure storage method by storing cryptocurrency in an environment that is completely isolated from network equipment, such as in safes, underground and other areas.
It has the highest security level and is usually used to store large amounts of cryptocurrency for a long time. This type of cold wallet is mostly used by financial institutions and users with large assets who require extremely high security. With deep cold storage, the process of accessing keys is also more time-consuming.
How to choose a cold wallet? 6 Things You Should Consider When Purchasing a Cold Wallet
How to find a cold wallet that’s right for you? When purchasing a cold wallet, you can choose based on the following aspects:
Supported cryptocurrency types: Different cold wallets support different types of cryptocurrencies, ranging from 5,500 to more than 10,000 cryptocurrencies and NFT types. Be careful to choose a cold wallet that matches your commonly used cryptocurrencies.
Price: The price of cold wallets ranges from NT$2,000 to NT$8,000. If you don’t have many assets, you can also consider starting with a lower-priced cold wallet.
Security functions: If you are looking for a wallet with more advanced security functions, it will provide another layer of protection for your assets. Some wallets offer tamper-resistant technology, PIN or password protection, which should also be considered when purchasing a cold wallet.
Operation convenience: For cold wallet beginners or users who have just entered the cryptocurrency market, they should choose a cold wallet that is easy to operate and has a relatively friendly interface.
Connection function: Some cold wallets will provide USB or Bluetooth connection functions, allowing connection to smartphones or computers, increasing the flexibility of cold wallet use and supporting asset management on other interfaces.
Additional functions: In addition to the above basic functions, some cold wallets are also designed with additional functions, such as supporting key storage or staking functions.
Cold wallet recommendations: Ledger, OneKey, BitoPro
Ledger cold wallet:
Ledger cold wallet exists in the form of USB, supports more than 5,000 cryptocurrencies, provides Bluetooth connection, and the manufacturer also provides key storage services. Ledger cold wallets are usually password protected and require a 4-8 digit PIN.
OneKey cold wallet:
OneKey cold wallet exists in various forms such as USB and card. It is a 100% open source hardware wallet that supports more than 1,000 cryptocurrencies. Provides Bluetooth connection and has its own exclusive App for use together.
Bitopro cold wallet:
BitoPro cold wallet exists in the form of a card, and supported main chains include: Bitcoin, Ethereum, Litecoin, BSC, Polygon, Tron, Doge, etc. The price of BitoPro cold wallet is low, it does not need to be plugged in, it is easy to carry, and it can be used through NFC sensing.
Tangem cold wallet:
Tangem cold wallet includes 3 sets of cards. The key is recorded on the card. It is very convenient to activate (it only takes 3 minutes). You can use the card by contacting the phone. The biggest feature of Tangem cold wallet is that you don’t need to remember the key by yourself, but you must keep the card properly.
CoolWallet cold wallet:
CoolWallet cold wallet is also in the form of a card, providing Bluetooth connection function. There is a small screen on the card to display transaction information. CoolWallet cold wallet also uses cold pressing technology. When the physical card is disassembled, the cold wallet will be permanently invalid, ensuring the safety of users' assets.
How to use cold wallet? Cold wallet setting and deposit and withdrawal instructions
According to the cold wallet usage guidelines listed by cryptocurrency information websites CryptoSwap and Blockworks, you can follow the following steps to use a cold wallet:
How to set up a cold wallet?
The steps to set up a cold wallet are roughly as follows:
Choose a cold wallet: First, according to your own needs and usage scenarios, choose a cold wallet launched by a reliable organization. Usually these wallets will be physical devices and equipped with matching applications.
Initialize the device: Connect the cold wallet to your computer or mobile phone and follow the instructions to initialize it. The process includes setting a set of PIN codes and generating annotation words (a series of words).
Write down the annotation words: If the cold wallet is accidentally lost, you can purchase a new cold wallet. At this time, you need to re-enter the annotation words to restore the cold wallet. Therefore, note words should be recorded in a safe place and never be stored in the cloud or shared with others.
Install and set up the application: Install the wallet application on your phone or computer and complete the settings to manage your digital assets.
Deposit into cold wallet
The steps to deposit funds into a cold wallet include:
Generate a receiving address: Generate a receiving address (usually a set of QR codes or a string of characters) in the cold wallet application.
Transfer from an exchange or other wallet: Use the generated address to transfer cryptocurrency from your online wallet or exchange account to a cold wallet address.
Confirm the transaction: After completing the transaction, confirm that the funds have been transferred to the cold wallet. The time required may vary depending on the blockchain network.
Withdraw money from cold wallet
To withdraw money from a cold wallet, you need to go through the following steps:
Connect the device: Connect the cold wallet physical device to your computer or mobile phone.
Initiate a transaction: In the wallet's app, select "Send" and enter the amount of cryptocurrency you want to transfer, and the destination address.
Confirm the transaction: Confirm the transaction details on the cold wallet device and confirm the transaction using a PIN or other authentication method.
Recording the transaction: Once the transaction is confirmed, it is sent to the blockchain and later goes through a verification process to ensure that the transaction is recorded.
Can cold wallets prevent fraud?
Cold wallets are not directly related to preventing fraud. But cold wallets are currently one of the safest ways to hold cryptocurrencies. As long as you don’t lose your cold wallet, don’t give the keys to anyone, and don’t make transactions from unknown sources, it can be effective. Protect against the risk of fraud or hacking.
However, almost nothing is completely risk-free, and even if someone doesn’t have access to your cold wallet, someone may still be able to steal cryptocurrencies through annotations. Annotation words refer to a set of specific words generated by the system, which are used to restore or regain the operating authority of the cold wallet, so if someone knows your annotation words, they can obtain and use your assets.
Although cold wallets are theoretically immune to remote hacking, if the device is stolen, the PIN code is stolen along with the cold wallet, or if you foolishly provide your own tags to others, someone with malicious intent may still obtain your information. Cryptocurrency.
Cold Wallet FAQ
Where to buy cold wallet?
It is recommended to purchase cold wallets directly from major cold wallet websites, rather than through other e-commerce or shopping websites, because you cannot confirm whether these cold wallet devices have been tampered with.
Are cold wallets safe?
Cold wallets are a safer way to store assets than online cryptocurrency accounts. Due to their offline characteristics, they can effectively prevent cryptocurrency keys and accounts from being stolen and hacked.
