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You are here: Home / Finance / What is a Cold Wallet for Cryptocurrency?
What is a Cold Wallet for Cryptocurrency?

What is a Cold Wallet for Cryptocurrency?

May 7, 2022 By Cade Hildreth Leave a Comment

Crypto is a type of global digital money in which transfers are verified and recorded using a decentralized system. This is in contrast to fiat currencies that are issued by a centralized authority, such as a government. The first cryptocurrency ever developed was Bitcoin, which was created in 2009 by a person (or group) using the pseudonym Satoshi Nakamoto. To this day, no one knows the identity of Satoshi Nakamoto.

Intriguingly, the creation of Bitcoin was the first time in history that humans developed a global currency, free of governments and country borders, that could be effortlessly sent and received.

Given the meteoric rise of Bitcoin and other cryptocurrencies, the question becomes, how do you safely store your cryptocurrency assets?

If you’re ready to learn this important skill, this article will teach you what a cold wallet is and how to use one to securely hold your cryptocurrency assets.

Do you need a crypto wallet?

As earlier stated, cryptocurrencies are a new type of digital, borderless money. No matter what types of crypto assets you choose to buy, you can liquidate your funds for fiat (aka, government-issued currencies) at any time. All you have to do is to transfer your funds over to an exchange platform and sell them to an interested buyer.

With the crypto market worth billions, cashing out can be done in a matter of minutes.

However, if you want to HODL (“hold on for deal life”) your crypto assets, then you will need somewhere safe them. Despite the near infallibility of blockchain technology, security loopholes have been exploited in the past by malicious scammers.

Indeed, even on the big exchange platforms, watertight security is an illusion. The recent hacking of the cryptocurrency exchange, Binance, is proof that these platforms are not 100% safe for storing crypto holdings.

Although Coinbase holds the honor of being the only top-profile exchange platform to have never been hacked, it holds most of its digital assets in cold storage vaults worldwide. If you’re serious about keeping your assets safe, you should consider getting a cold wallet too.

What is a cold wallet?

To begin with, a crypto wallet is a device or software that securely holds your digital tokens. It’s the equivalent of a bank account for fiat currency.

There are two kinds of wallets: hot and cold wallets. While they both perform the same function, a cold wallet differs in that it allows users to store their digital assets safely offline.

For a hot wallet, you need an internet connection to access your tokens. Because of the cybersecurity risks involved with this connection, using a cold wallet is a significantly safer approach.

However, some investors choose to use hot wallets because of their ease of use. On the other hand, cold wallets are arguably more secure, even though they typically cost more.

How does a cold wallet work?

To understand the concept of cold wallets, it’s important to understand a few simple technical concepts. Cryptocurrencies are blockchain-based digital assets. Crypto wallets are similar to physical wallets in that they hold valuables. However, the difference between the two lies in their encryption keys.

There are two types of encryption keys: public and private. The latter is similar to your bank account number, serving as a way for the blockchain to identify your unique account for transactions.

On the other hand, your private keys serve as a password to your account, providing the final line of encryption. Both keys are made up of a string of random characters called a hash and are necessary to effect fund transfer to or from your wallet.

How can using a cold wallet protect you from cyber theft?

When you use an internet-based wallet, you’re vulnerable to brute force attacks from scammers. So, if you’re in the habit of using network-based crypto wallets to store your private keys, you’re at a huge risk.

When you use a hot wallet, the configuration for completing transactions is effected from one network device. The wallet stores and generates your private keys, signs each blockchain transaction digitally, and broadcasts the block to the rest of the network.

However, this same procedure also broadcasts your presence to online hackers who crawl the networks, looking to gain knowledge of the private keys used to timestamp the transaction block.

When you use a cold wallet, the transaction is signed offline. As a result, there is no chance of having your private keys compromised. After initiating a blockchain transaction, the details are temporarily relocated to offline storage such as a CD, hard drive, offline computer, or USB.

Cold storage can also be as simple as private keys written out on paper. The signing is digitally done on a cold wallet. Afterward, it is transferred to the blockchain. Because your private keys remain separate from any online server while the signing procedure is underway, thieves cannot access it.

However, there’s a hitch. While cold wallets are safe, they don’t work with an internet connection, so the transfer process can take longer than a hot wallet and prevent you from quickly selling or liquidating your assets in a crisis.

Types of cold wallets

Here are some of the most popular forms of cold wallets:

Paper wallet

This is one of the most basic cold storage forms. It’s a document containing both private and public keys, usually a sheet of paper. You can print it out from the corresponding online tool.

Usually, the document contains a scannable QR code to enable the digital signing of transactions. However, anyone using a paper wallet has to take extra care to safeguard it. If it falls into the wrong hands, you may lose your funds forever.

Hardware wallet

This type of wallet employs a smartcard or an offline-based device to generate private keys. Everything is done offline, securely, so you needn’t worry about malicious incursions. An example of this type of hardware wallet is the Ledger USB Wallet.

Resembling a USB device, it functions similar to one and works with a Chrome-based app and a computer to keep your private keys safely offline. Similar to a paper wallet, it’s a physical item and has to be handled with care and discretion. If you lose the device or have it suffer irrevocable damage, you can lose access to your hard-earned tokens forever.

Other examples of hardware wallets are KeepKey and TREZOR.

Offline-based software wallet

As a crypto investor looking for ways to secure your coins, you can also go for an offline software wallet. It’s like a regular hardware wallet, though it operates more technically and complicatedly.

First, it divides your wallet into two separate platforms, both fully accessible. The first compartment stores the private keys offline, while the second compartment stores the public keys online. As a result, it’s a sort of hybrid wallet that combines the best features of offline and online wallets.

The online wallet generates the transactions and then transferred to the offline wallet to be signed. After the digital signing, the transaction goes back online and is then broadcasted to the blockchain.

Some popular offline software wallets are Armory and Electrum.

DeFi wallets

Another interesting option to know about are DeFi wallets. Because DeFi wallets are non-custodial wallets, there is no centralized authority that can be hacked. Thus, only someone who knows your seed phrase or your private key can access your cryptocurrency assets.

For example, Coinstats offers a DeFi wallet that you can use to manage your crypto assets. Meaning, it lets you use a single wallet to buy, sell, track, and earn on your crypto. Crypto.com also offers a DeFi wallet, as does MetaMask, Trust Wallet, and a few others.

Conclusion

Now you know about cold wallets for cryptocurrency and how they can be used to securely hold digital assets. When choosing a wallet, make sure to check that your tokens compatible with it. This is because cold wallets do not universally support all types of tokens.

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Filed Under: Cryptocurrency, Finance Tagged With: Bitcoin, cryptocurrency

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“As an LGBTQ+ entrepreneur, real estate investor, former USA Rugby Player, and fitness fanatic, I’ll teach you what your parents and teachers should’ve taught you, but didn’t know themselves.” -Cade Hildreth

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Or, listen to Cade’s articles on the go as a Podcast.

Because it’s the New Year, let’s talk about ch Because it’s the New Year, let’s talk about change...

For a long time, I’ve thought about top surgery. I remember when I was 6 or 7 years old when I wanted to run around outside on a hot, sunny day with my shirt off…and I first saw my parents… hesitate. Ughh. 

It wasn’t their fault but I still remember that heart wrenching feeling. To their credit, they ultimately said, “Ok, go do it!” While I did “do it”, I remember the feeling of shame that crept in.

Over the years, being in affirming sporting/rugby circles helped suppress the urge to get top surgery, but it never quite “stayed down.”

So last summer I got keyhole #topsurgery. I’ll talk about recovery in another post because it was definitely weird to not strength train for months.

But in THIS post, I want to share two things:

1. I am SO grateful to my wife Erin for being the supportive and growth oriented partner that she is. 🥰🙏❤️ 

She is now following her call to get a divinity degree and she’s already working in ministry as a Pastor in Training at an incredible, inclusive Presbyterian church here in Virginia. I am grateful to her for supporting me as I become more and more of who I am—and I’m enjoying watching her do the same! Love you, babe!

2. Second, I’m grateful to get to share who I am with my family. This summer we took a trip to Madden’s resort in MN to celebrate my parent’s 50th wedding anniversary. (It was actually their 52nd, because we had to postpone it twice due to Covid.)

I was nervous to be in the pools and lakes around them, but I could feel it was my only choice because I knew I wanted them to “know me”. And, how could that happen if I “hid me”?

Ultimately, I have to tell you…it was freeing to be me, as I am, who I am. 

I had the BEST time splashing around and biking and goofing around with my wife, niece, nephew, & sister. 🌊🏖🐟

So, I suppose, this is a gratitude post to thank those who have supported me over the years as I become more and more of who I am. 

Top of that list is my wife, Erin, but there are countless others. ❤️

If you’re reading this, thank YOU for being one of those people in my life too. I am deeply grateful. 🥹
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#lgbtqfamily #nonbinary
How to set a boundary? 🤔 . . . . #lgbtqia #lgb How to set a boundary? 🤔 
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#lgbtqia #lgbtqcommunity #emotionalhealth
What do you do if you’re telling a past story ab What do you do if you’re telling a past story about someone who has transitioned? 🤔 Share a 💯 if you agree ➡️🏳️‍⚧️🏳️‍🌈
7 things I got clarity on in 2022: 1. Good and b 7 things I got clarity on in 2022: 

1. Good and bad are labels. All things are experiences. 

2. Maturity is taking full responsibility for oneself. 

3. Having a loving, conscious relationship with myself is a core value. 

4. Emotions do not mean that anything has to be done. 

5. When I am in congruence with what I want, I have it. 

6. I have permission from myself to stop doing anything that doesn’t lead to my peace and empowerment. 

7. Stepping toward emotions and being able to feel them is a superpower. It determines the quality of my life. 

(Are there any above that you’d like me to further explain?)
 
Most importantly, which # above resonates with you? ⬆️

Happy New Year, y’all! 🎊🥳
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#lgbtqcommunity #lgbtqiaplus #lgbtsupport #nonbinary #trans #selfgrowth
Interview with Jenny Nguyen, Founder of the Sports Interview with Jenny Nguyen, Founder of the Sports Bra—The World's 1st Bar to Only Play Women's Sports - shorturl.at/doGHZ

I'm excited to introduce you to today's #podcast guest, Jenny Nguyen, who is a professional chef, elite athlete, and entrepreneur.

I invited Jenny onto the podcast because she has done something extraordinary that is long overdue: She has opened up a sports bar that exclusively plays women's sports!

Despite extensive research, Jenny hasn't found another sports bar worldwide that ONLY plays women’s sports.

Given that it's nearly 2023, this is mind-blowing. As a lifelong athlete, I find her vision compelling and inspiring.

Aptly called the "The Sports Bra", the venue is putting Jenny's culinary skills on display alongside women's sports worldwide.

The Sports Bar has taken its mission a even further by partnering with and elevating other local, women-owned businesses.

Specifically, it:

1. Sources its grass-fed beef from @CarmanRanch, an ranch run by Cory Carman, a third gen rancher out of Wallowa, Oregon).

2. Sources its alcohol from Freeland Spirits, an all-women owned and operated distillery out of NW Portland.

3. Has furniture built by @girlsbuild_org, a non-profit organization headed by @ktmhughes in Portland, OR, that teaches carpentry and construction skills to young girls as a path to empowerment.

Since opening the Sports Bra this April, people have come from ALL over the U.S. and the world to experience it—including many professional female athletes.

To learn more about Jenny as she makes history, features women's sports, and elevates women-run businesses, listen to the episode here:

shorturl.at/doGHZ

Or, you can check out the Sports Bra at:

@thesportsbrapdx
TheSportsBraPDX.com/

Have you heard of the Sports Bra or been out to experience it in person?

#lgbtqiaplus #womenownedbusiness #lgbgtqia #lgbtqcommunity #womenssports #womeninsport
Over this recent holiday stretch, we… - enjoye Over this recent holiday stretch, we… 

- enjoyed some quiet time at home
- got a sauna delivered (but not yet installed)
- decorated for the holidays
- baked a bunch
- visited our favorite farm
- did some sight seeing
- and perhaps, most importantly, survived the cold snap along with our feather friends (who lived in the garage for a few days so we could heat them with a space heater) 🥶🐔

How have the holidays treated you…and did you get hit by the winter storms? ❤️🎁☃️❄️
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