One of the most important concerns for every person who starts in the world of cryptocurrencies is how to keep their funds safe.
For this reason, today I want to talk to you about what is known as a cold wallet, probably the best tool to protect your digital assets and keep them safe.
There is no doubt that Bitcoin and other cryptocurrencies have a series of qualities that make them an increasingly precious asset.
Which is why they have become one of the favorite targets of hackers and cybercriminals. In this difficult context, it is of the utmost importance to take all possible precautions.
If you want to sleep peacefully at night and not be continually worried about the security of your cryptos, keep reading.
Because it is really worth it. If you make it to the end, you’ll find out everything there is to know about the different types of wallets, their level of protection, and why you should own one.
What is a Cold Wallet?
Wallet, purse, wallet, or wallet are words that mean the same thing: a place where we can store digital money.
And when I say digital, I am not referring exclusively to cryptocurrencies, but also to common currencies such as the euro or the dollar, which, after all, are mere accounting notes.
However, in today’s article we are going to focus only on cryptocurrency wallets, of which there are mainly three types:
1.- Hot Wallets
A hot wallet is an online medium where you can store various types of cryptocurrencies.
Thus, the main characteristic of this type of wallet is that you must be connected to the Internet to carry out any type of operation (receive, buy, send, etc).
These types of wallets offer great comfort and flexibility, so they are usually the most convenient when making many transactions on a regular basis, such as trading.
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However, its great drawback lies in the possibility of being hacked at any time.
The best example of hot wallets is exchange. These, despite the great security measures they have, are exposed 24 hours a day to attacks perpetrated by lovers of what is foreign,.
so the funds you may have stored there will never be 100% safe.
2.- Cold Wallets
Unlike the previous ones, cold wallets allow you to manage digital currencies without the need to be connected to the Internet, that is, offline.
As is evident, this gives them a really important security bonus, since you avoid practically all external attacks that you may suffer at a stroke.
However, if you are a newcomer to this world, you may be wondering how it is possible to manage funds in a cold wallet without being connected to the Internet.
Quiet, it is something that we will see a little later. To begin with, you should know that there are four types of cold wallets:
- Desktop wallets (PC)
- Mobile apps
- External hardware (USB)
- writing paper
Of the four types, the ones that truly offer the possibility of working 100% offline are the last two (hardware and paper).
Since the first two do require an Internet connection to work. However, both of them give you total control by having private keys in your possession.
3.- Hybrid Wallets
As its name suggests, hybrid wallets combine the qualities of the previous two, although never in such a specific way. For example, well-known exchanges like Bitpanda or Coinbase actually work as hybrid wallets.
On the one hand, they allow the sending, receiving, buying, or selling of a wide variety of digital assets online, both in its desktop version and through its mobile application.
On the other hand, they also have a safe deposit service, where the funds are sent to cold wallets of the respective companies.
Why is a Cold Wallet the Best Option?
The most important reason for making the decision to use a cold wallet is its greater security compared to the other options available, although it is by no means the only one.
However, there are also some drawbacks that you should be aware of before buying and/or installing a wallet with these characteristics.
In Favor
- You have 100% control over your funds.
- You avoid hacks and unwanted attacks.
- You retain much of your privacy.
- You prevent embargoes or expropriations from governments or entities that do not respect private property.
Against
- You become your own bank, which comes with enormous responsibility.
- If you forget or lose your seed phrase, you can lose all your capital.
- You need to acquire a small knowledge base.
- In the case of hardware wallets, you have to make a small investment.
Taking all of the above into account, cold wallets are presented as the best alternative for people who have a lot of capital in digital assets.
However, it is not necessary to have a lot of money either, since they are also ideal for people with little capital but whose objective is to keep cryptocurrencies in the long term, that is, what is known as “holders”.
The Seed Phrase: The Treasure of any Cold Wallet
One of the most recurring questions that people who have in mind to acquire a cold wallet in the form of a hardware wallet usually ask themselves, is what happens in the event that it is lost or damaged for any reason.
Well, the truth is that nothing happens, since the key to everything is found in the seed phrase.
The seed phrase or seed phrase is a set of 12 or 24 words that allow you to access your funds anytime, anywhere.
And is that, contrary to what some believe, cryptocurrencies are not stored in any wallet, since they always remain in their corresponding blockchain.
In reality, what the wallet allows is easy access to funds and the ability to carry out transactions with them, nothing more.
In turn, the seed phrase is an encryption of the private keys of your wallet, which allows access to your funds (regardless of the wallet) in an easy and uncomplicated way.
Therefore, you should treat the seed phrase like a real treasure, saving the 12 or 24 words in several different places and always offline.
At the same time, it is also convenient not to keep these words in the same place as the wallet, being the most prudent not to have them in your place of residence.
Obviously, it goes without saying that the seed phrase should never be shared with anyone, since anyone who knows it can easily steal your funds from anywhere in the world.
And of course, losing or forgetting your seed phrase will not allow you to access your cryptocurrencies in the event that you have to make a backup for any reason (reinstallation of the operating system, change of mobile phone, breakage, or problems with the USB wallet, etc. ).
Cold Paper Wallet: Another Option to Consider
Paper cold wallets are by far the easiest to use. Basically, it is about printing a QR code on any paper that contains all your private keys, or what is the same, all your funds and transactions made. Easier impossible.
From there, you must make several copies and keep these papers exactly as you did with the keywords or seed phrases, that is, in a safe place and if possible away from home.
However, you must keep in mind that paper is very delicate, so it is best to protect it (plasticizing it, for example) to prevent deterioration.
On the other hand, these types of wallets are impractical and versatile. So this is only recommended if you want to store your crypto and forget about it for a long time.
For example, buy bitcoins now and store them until you retire. 😀
Final Words
As you have seen during the article, cold wallets are the safest option to store your cryptocurrencies.
On the other hand, hot wallets (especially those provided by exchanges), are much more susceptible to attacks and putting your money at risk.
However, to take advantage of all the possibilities offered by the world of crypto assets, it is necessary to diversify, which is why most advanced users use several types of wallets.
Normally, hot wallets are operating (buy, sell, exchange…). While cold wallets are there to save and store cryptos with the maximum security guarantees. Almost always with a medium-sized custody time horizon. or long-term.
Finally, remember that it is not necessary to spend a single euro to start using wallets and accumulate your first funds.
For example, you can use free wallets such as Exodus or Trust Wallet. And send there what you generate in the wide variety of sites to earn bitcoin for free that exist.
In my opinion, this is the best option for beginners with many doubts about this exciting and complicated world.
Once you have acquired enough confidence and knowledge, you will always have the option to go one step further and buy or invest in whatever you see fit, be it hardware wallets, digital assets, airdrops, or whatever. 😉
