As you may be already aware of, cryptocurrency is highly popular today. However, there are legitimate concerns about the security of blockchain transactions. There are multiple threats in the cyberspace such as viruses, trojans, malware, ransomware, and hacking actors. As a result, those individuals or groups having cryptocurrency assets or who do frequent cryptocurrency transactions have to be vigilant. Cold wallet is one such tool that prevents or reduces the chances of malicious players siphoning off your funds.

Difference between Cold Wallet and Hot Wallet

A cold wallet stores private keys and is not connected to the Internet. Thus, the private keys cannot be hacked or be vulnerable to unauthorized access. Whereas a hot wallet stores private keys and is connected to the Internet. A hacker can mount attacks on hot wallets and gain access to the private keys. Using the private keys the hacker can steal funds belonging to other entities such as individuals, businesses, governments, and other institutions. For the layman, private keys are used to verify the ownership of cryptocurrency. A cold wallet is also referred to as cold storage or offline storage.

Hot wallets and cold wallets each have their pros and cons. Selecting one of them depends upon your requirements as well as preferences.

Different Types of Cold Wallets

1. Sound Wallets

Private keys are converted into sound files which are put in CDs or USBs. Making a sound wallet is done by utilizing software tools to change the private key into an audio document. In order to get back the private keys the document is processed utilizing sophisticated tools such as spectroscopes. Drawbacks include the possibility of physical damage, deterioration of audio quality and utilization of pricey sophisticated decoding tools. This is a costly as well as time consuming method to secure your private keys. 

2. Metal Wallets

They cannot be easily damaged or destroyed by fire and water. Also, they remain intact for long periods of time. Here private keys are engraved on a metal plate. They serve as a storage device for recovery information. They do not physically connect to the blockchain.

3. Paper Wallets

Here the private keys are written on paper or in the form of a QR (Quick Response) code. Paper wallets have significant disadvantages. They can be easily damaged, stolen or misplaced. The former do not have recovery facilities. In the event of paper being destroyed, access to the assets is permanently gone. When a paper wallet is utilized to dispatch cryptocurrency, the private keys have to be entered in a software wallet. This makes it vulnerable to online attacks. As a result of its shortcomings and drawbacks, currently paper wallets are out of favor. In case you still want to use this method make multiple backups of the paper document and store them in different secured storage units. 

4. Offline Software Wallets

These are also referred to as air-gapped wallets. The former are software applications installed on computing devices that are not connected to the Internet. Technical knowledge is required to install and utilize them. 

We look at the various steps to dispatch cryptocurrency from an offline wallet. First develop an unsigned transaction on a computer connected to the Internet. Next transfer the transaction to an offline computing device. Sign the transaction via the offline wallet. Next move the signed transaction to the online computing device. Finally broadcast the transaction to the relevant blockchain. This is a safe albeit long drawn and inconvenient method for frequent use.

5. Hardware Wallets

These are physical entities tailormade to store private keys in offline mode. They are a popular and reliable choice. Hardware wallets link to a computing device or mobile using USB or Bluetooth. They come along with an app to execute blockchain activities. Utilizing the apps, you can sign transactions which are sent to the blockchain. This is done without the private keys being exposed to online attacks. Certain hardware wallets use multi-signatures to add an extra layer of security. Several contemporary hardware wallets come with cameras which scan QR (Quick Response) codes. As a result, private keys are safe in the scenario of utilizing entities having a USB connection. Now, hardware wallets come with a screen as well as buttons that you can use to approve transactions by the device. As a result, private keys stay within a secure hardware storage.  Hardware wallets shield private keys from being misplaced or physically damaged. The device produces a recovery phrase that is utilized to get back access to an account on a fresh hardware wallet in case the original is misplaced or physically damaged.

To Sum Up

Choosing the right wallet can make a big difference in keeping your cryptocurrency safe. While hot wallets are convenient for quick access, cold wallets offer better protection by staying offline. If security is your top priority, using a cold wallet is a smart move.