5 min reading
Ever thought about how crypto assets are stored. Interesting, isn’t it? Find vital information in this article.
A cryptocurrency wallet is an app that allows users to store and retrieve their digital assets, just like a traditional bank. The difference is that you don’t need to spend the money in your digital wallet, but it allows you to store it in one place. Digital currency can be stored in a cryptocurrency wallet for other transactions. There are two types of wallets. Hot wallets and cold wallets. We’ll talk about cold storage. Cold storage is an offline wallet used to store bitcoins and because it is offline, it is protected from unauthorized access, cyber hacks, and vulnerabilities. Understanding cold storage is fairly simple. Let’s start by looking at the drawbacks of a digital wallet. With traditional banking, when a savings account is tampered with, the bank is able to refund the money to the account holder.
But with a crypto-currency wallet, if the coins in it are tampered with, there is no way to get them back due to the decentralized nature of digital currencies. This is a bit risky as everything can be lost in one go due to the lack of offline backup.
How transaction is conducted
A transaction normally involves two people, a private key and a public key. Both parties will have to share their public keys in order to complete the transaction. Once everything necessary to complete the transaction has been done, and the payment has been delivered to the appropriate address, the seller can only access the funds using a private key. If the private key is lost, the user’s coin could be accessed without authorization.
In addition, private keys solve the problem of signing transactions with private keys in an offline environment. Here’s how it works. Once a transaction has been initiated online, it is temporarily transferred to an online wallet and then stored on a device. A paper wallet is used for offline transactions. This is a document on which public and private keys are written. The paper wallet is then printed with an offline printer. It also has a QR code that can easily be scanned and signed to complete a transaction.
The downside of this method is that if the paper is lost, the user may never have access to the address where the funds are stored.
The examples of Cold storage:
Ledger Nano S is a cryptocurrency hardware wallet that supports a variety of coins like Monero, Binance, ERC-20 tokens, and a lot more. It was introduced in 2016 and is called the original hardware wallet. Nano integrates a secure chip and allows users to store other applications. When the wallet is initially set up, a seed will be generated which will be used to generate every key that will be used on the device. During the setup process, a 24-word password is given which you will have to write down and keep safely. In case you lose the key, you can use the password to access your funds. Note that this mnemonic code will be displayed only once on your hardware wallet screen, not the desktop screen for fear that it could be hacked. The disadvantage with this cold wallet could only be found in the physical looks, like the buttons being too small and the fact that it does not have the Bluetooth option.
Ledger Nano X, still one of Ledger’s creations, is a second-generation hardware wallet. It is quite similar to the ledger Nano S. They have the same interface yet they differ in that Nano X has been designed for mobile use as opposed to Nano S. The integration of the Bluetooth app enables it to be used wireless via smartphones. However, this Bluetooth integration could be a threat to the wallet because it can become a potential vector for cyber attacks.
The advantage of cold storage is that you have coins with you wherever you go. The device is compact, which allows for convenience and discretion. It is important to remember that, regardless of the type of “cold” wallet selected, it is imperative to make and keep separate backups of wallets and all important data, so that there is always an opportunity to restore them on different media.
In conclusion, with cold storage, coins can be easily retrieved and found in case of a hack. Hot wallets on its part, though they can be easily accessible over the internet for rapid transactions, could be subject to attacks like cyber-attacks for fear that they could be hacked. the reason why it is always preferable to keep just a small amount for online emergency transactions. Note that hot wallet applications are downloadable and are also not directly linked to any particular exchange platforms. This allows you to have access to your private keys as well as cryptocurrency assets.
5 min reading
Discover how to prevent possible losses on the crypto market.