Hot Wallet vs Cold Wallet (Storage)
Their popularity is constantly rising, which can not but rejoice. And now is important to store your assets. Often I hear questions what's the difference between hot and cold cryptocurrency or bitcoin wallets. Which is better to choose and do you actually need this particular type of wallet.
Generally believed that a hot wallet is a wallet with an active online connection (directly connected to the Internet). This can be a wallet in the system blockchain.info or in a service like jaxx.io. Even a deployed node on your personal computer with an installed wallet is a hot cryptocurrency wallet. However, with confidence I can say developing a cryptocurrency or bitcoin exchange or another cryptocurrency project, the lion's share of assets should be kept in a cold wallet.
There are a number of advantages, like:
1. An active connection allows you to instantly send cryptocurrency and tokens. For example, after the launch of ICO.
2. Easier to manage
At the same time, on the other side is the most dangerous drawback - since the wallet is connected to the Internet there is a high probability that it can be hacked and all the money stolen by scammers. Transactions speed especially SegWit and Lightning is quite high, and you will not even have time to realize what happened. In order to prevent such a confluence of circumstances, there are 2 options. Use a multisig wallet, and/or a cold wallet.
A multi-signature requires any transaction to be confirmed by several different people who can be located anywhere in the world. Once they approve or "sign" the transaction, it instantly going to the network for execution by the miners.
If to be brief, cold cryptocurrency wallet is an offline wallet isn't connected to the Internet. It can be for Bitcoin, Ethereum or Litecoin. There 3 most common types of cold wallets:
• Hardware wallet
• USB Wallet
• Paper wallet (yes, you read it right)
Bitcoin wallet, like many other cryptocurrencies, consists of two key components. Public and private key. Using the first you receive cryptocurrency or tokens because this is the address of your wallet in the blockchain. Using a private key, you send money to other members of the system. So how still create a paper bitcoin wallet and what is it? Simple it is your two keys printed on paper. For convenience and simplicity, it is better to use the QR code together with the text. Unlikely you will want to manually enter 32 symbols of your wallet each time although some of the techniques of mnemonics can simplify this task at times. The main danger is the fragility of paper. A wet or burnt paper becomes almost useless.
Keeping a key can be easier. USB devices cost few coins from almost US $1. On a dedicated flash stick, you can store both files, and even make it multicurrency. The disadvantage of this option is considered the vulnerability of systems, malware, and viruses. This flash drive should be stored only for one purpose.
To date, this is the safest way to store bitcoins and other cryptocurrency assets. Why is it so remarkable? First, the device comes with pre-installed software and works as a USB device, which creates an additional security level. Secondly, the capabilities of the hardware wallet and storage are much richer, and multisig is quite significant.
At the moment, there is a short list of manufacturers who offer such devices. And in their field can be identified perhaps the most vivid and marketing-oriented. They are Trezor and Ledger. The device starts from US $79. Agree, an affordable price for the safety of your cryptocurrency and bitcoin assets storage.
If you still do not trust modern technologies, or just want to secure yourself to the maximum, then here's the instruction for a deep cold and frozen wallet.
Theory: we need to add another layer of security to your cold wallet.
1. Buy a hardware wallet (or make a paper wallet).
2. Save its address.
3. Transfer the required amount. After the procedure, make sure that the cryptocurrency is on it. You can create a "watch-only" wallet.
4. Buy a safe or rent a deposit box.
5. Remember the code and close it securely.
Of course, in this case, the withdrawal of money can take significantly longer. However, to store large amounts, this stage can be very useful for you. Deep cold or frozen storage is practically invulnerable (except in addition to disasters).
Deep-frozen storage sounds like a safe solution, however, for withdrawals, it is time-consuming enough, agree? An alternative to it is the multi-signature or multisig wallets.
The wallet holder becomes a certain number of people, say 3: Howard, Kim, Alice. Each of which has its own right to vote. The transaction is carried out, let's assume only if 2 out of 3 owners sign the transaction, any combination will work either as Howard and Alice, or Kim and Howard. And so on. Ideally, when a team of partners does not want to rely solely on verbal arrangements they can rely on technologies and multisig cryptocurrency wallet. Resembles smart contracts. There are many options for multi-signature. Be it 3 of 3 signatures or 1 of 3.
If you do not know how to organize work and implement a cold wallet in your platform, you can contact Merehead for advice either consultation. Our goal is to save your assets.