What is a cold crypto wallet and how does it work?

Understanding cold wallets

As you can guess from the preface, this method is the safest for long-term storage of coins. Private keys are offline, so any attempt by even the most cunning hacker to steal funds will be an absolute failure.

Let's make it clear right away that cold and hardware are not the same thing. Not every cold wallet is hardware, but first things first, let's start with the definition.

What are cold wallets?

A cold wallet for cryptocurrency is a tool for storing coins that does not interact with the Internet and does not work with smart contracts. It is used only to receive, store and send assets. But how to do this without connecting to the network?

How cold wallet device work

It is important to understand that wallets do not store coins at all. The latter are located at addresses inside the blockchain network. How does a cold wallet work? It stores private keys needed to manage addresses with cryptocurrency outside the Internet. While a hot wallet - on devices that have access to it.

It is simply impossible to steal funds stored in this way via an Internet connection, no matter whether the keys are on a special medium, on a piece of paper or on a CD with an audio recording.

Types of cold wallets

The most convenient is a hardware cold wallet deviceone, but there are also paper and sound ones.

Hardware wallets

These are the devices that resemble flash drives. To use assets from one of them, you need to “sign” the transaction with a private key. To do this, the device connects to a computer with network access, using a blockchain bridge, a special application for communication with the blockchain. Data about the “unsigned” transaction comes over the bridge, the device “signs” it and sends it back.

What about cold wallet usage if it is hardware? Store it carefully and do not take it out in public places. Do not show a lot of strangers that you have cryptocurrency. It is impossible to steal funds from hardware storage via the Internet, but it is quite possible to “convince” the owner to tell you the PIN code for it.

At the same time, you should not be afraid of losing the media or physical destruction. Usually, its initial setup involves creating a seed phrase. With its help, you can restore access to assets, even if the device on which the cold storage exists is destroyed.

Paper wallets

At the dawn of cryptocurrencies - the most common storage method. This is just a piece of paper with private keys printed on it, usually in the form of a QR code. Keys outside the Internet? Yes. Are they protected from online hacking? Yes. And from physical destruction? No. Paper burns and gets wet very well. Mnemonic phrases are not provided for paper crypto storage.

As for audio, private keys are recorded in this case on media in audio format. This is slightly more reliable than on a piece of paper, but only slightly and is associated with new difficulties. Even now, not everyone has a computer to read CDs, and what will happen in 20-30 years?

So, the best cold wallet is a hardware one. Assets on it are reliably protected:

• from hacker attacks - no network connection;
• from loss in case of physical destruction of the media - the presence of a mnemonic phrase.

Integrating Cold Wallets into Your Crypto Strategy

Users need both cold and hot wallets. The former are for convenient and quick work with crypto assets, while the latter are for long-term and secure storage of significant amounts.

Business and cold wallets

It is especially important for companies to promptly withdraw the amounts accumulated in hot storage. Users of the BitHide crypto payment gateway for business can set up automatic withdrawals to their cold wallets. The settings are very flexible, you can set:

• the amount to activate the automatic withdrawal;
• the frequency of automatic withdrawals, one-time or regular;
• an unlimited number of addresses to which funds will be sent in turn.

In addition to the automatic withdrawal function, BitHide has a whole set of tools that make it a virtual pocket crypto bank. Among them, for example, the creation of an unlimited number of addresses for convenient work with different profit centers.

Conclusion

Money loves to be counted, and cryptocurrencies also love responsible storage. Use hardware cold wallets to be sure that your crypto capital is reliably protected from the actions of online intruders. The BitHide team hope this article was useful to understanding the most important questions about cold wallets and methods of application.