What is a Cold Cryptocurrency Wallet?
Today we will tell you how a cold cryptocurrency wallet differs from a hot one, give the most interesting examples of them and touch on how to create the most budget-friendly cold wallets.
Many people mistakenly believe that cryptocurrency is stored in a wallet. In fact, this is not true — it is always in the blockchain, and the main task of a cryptocurrency wallet is to provide you with the ability to access your assets. Nevertheless, it is the type of wallet you end up choosing that directly affects the security of your funds.
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We will tell you about the main types of cryptocurrency wallets, and we will particularly focus on one of them, even if it is not the most convenient, but the safest. And, of course, we will touch upon the question of how to make a cold wallet for cryptocurrency without special expenses.
Let’s understand in detail what a cryptocurrency wallet is
In simple terms, a cryptocurrency wallet is just a way to store two sets of symbols. The first of them is a public key, which can be conventionally compared to a bank account. It is not a secret, and is available to almost anyone, and obtaining it will not allow an attacker to get hold of your funds.
On the contrary, the safety of the second set of symbols — the private key — directly depends on whether you remain the owner of your cryptocurrency. Its closest analogies are your card pincode or the key to a safe deposit box. And that’s why you should keep your private key as carefully as possible.
What are cryptocurrency wallets
All cryptocurrency wallets can be divided into two large categories — custodial and non-custodial. Custodial wallets are stored by a third party, which is often a cryptocurrency exchange or other publicly available service. Such wallets may be suitable for beginners who want to transfer the responsibility for ensuring the safety of their funds to more experienced market participants. In addition, they provide the convenience of using cryptocurrency and related services and allow you to restore access to your wallet even if you lose your keys.
On the other hand, custodial wallets are perfectly described by the simple phrase “your keys are not your crypto”. By transferring to another person the obligation to store and protect your cryptocurrency wallet, you actually give him carte blanche to manage it, which means that you can lose your savings at any moment. And this can happen both because of a crypto exchange hack, and on its own initiative. Suffice it to cite the example of the American Coinbase, which recently announced the blocking of wallets associated with Russian citizens. In our time, this is more relevant than ever.
On the contrary, when using a non-custodial cryptocurrency wallet, you and only you get full access to your cryptocurrency, but you are also responsible for its safety, i.e. the safety of the private key or cid-phrase. If it is lost, access to the cryptocurrency will be lost forever, as well as theft of the private key will allow an attacker to gain full access to it.
Conditionally, all non-custodial crypto wallets can be divided into cold and hot. Why conditionally? The whole point is that you can turn almost any hot wallet into a cold one. But let’s talk about everything in order.
Hot wallet
Connected to the Internet and always available.
Hot wallets are ideal for people who make frequent transactions. Desktop applications like Exodus, mobile apps (Trust Wallet, MetaMask) and browser extensions (MetaMask, MathWallet) can be used to store private keys in such wallets.
Cold wallet
It has no access to the network and is as secure as possible.
As you know, everything that has access to the Internet, sooner or later can be hacked. Therefore, the best way to protect your assets is to use cold crypto wallets without access to the network. In most cases, they are understood as hardware crypto wallets, usually made in the form of a thumb drive. They generate public and private keys and then store them on the device itself. Well, conducting transactions with cryptocurrency becomes possible only when such a “flash drive” is connected to a computer.
To be fair, any hot wallet can be turned into a cold one if desired. To do this, it is enough to isolate the machine on which they are stored from the outside world. This can be a disconnected computer or a smartphone without internet access. Well, in addition, smartphones with a cold wallet are already on the market. For example, the same Just5 CoinPhone uses a separate isolated environment without access to the network to store a cryptocurrency wallet.
How to create a cold wallet? The cheapest cold cryptocurrency wallet can be called an ordinary piece of paper. More precisely, a piece of paper with a cid-phrase written on it. Of course, in this case you will have to enter the cid-phrase manually to make transactions, and the sheet itself can easily get lost, the ink on it can fade or erase, and to use this way of working with cryptocurrency, to put it mildly, is not very convenient. But it is cheap, surly and safe.
The best cold cryptocurrency wallets
There are a huge number of cold cryptocurrency wallets on the market. They differ from each other in their price, feature set and design. Below you will find the best cold wallets.
Ledger Nano X
The second generation cold crypto wallet from Ledger supports over 1,800 coins and tokens. This brushed plastic and stainless steel device is slightly larger than a regular flash drive (72×18.6×11.75 mm) and weighs about 34 grams. It has its own 100 mAh battery and supports several interfaces. The wallet can be connected to a computer using a regular USB cable or to Android and iOS smartphones via Bluetooth.
To start using Ledger Nano X, you need to set a PIN code and a 24-word passphrase, which will become your wallet’s private key. As with other wallets, as long as you keep the private key safe, you won’t lose your crypto assets even if you lose your wallet.
How does a cold cryptocurrency wallet work? Such wallets allow you to sign transactions when you connect them to your computer or mobile device. At the same time, the rest of the time they remain physically inaccessible to attackers. Up to 100 different applications can be installed on the Ledger Nano X, including Bitcoin, Ethereum, XRP and over 5,500 tokens. It will cost you $149 to purchase.
Ledger Nano S
Our ranking of the best cold cryptocurrency wallets continues with the Ledger Nano S. This is a simpler, but also much more affordable hardware crypto wallet model. It is also made of stainless steel and plastic, can also connect to a computer or laptop via USB, but no longer has Bluetooth support and, as a consequence, can not be used with smartphones without OTG. However, it is quite difficult to find such a gadget nowadays — the vast majority of modern smartphones support OTG.
Like the more expensive crypto wallet, Ledger Nano S can work with almost all coins and has an ANSSI security certificate. However, it is a few years older than the Nano X and uses an older version of the security chip. It also does not have its own battery, i.e. the gadget can only work with an external power source — for example, a computer.
The capabilities of Ledger Nano S are limited to 3 simultaneously installed programmes (depending on the volume). But its price is also much lower — $59.
Trezor Model T
Trezor Model T supports more than 1800 coins and tokens, allowing you to make transactions via Trezor Suite. And this can be done either through a web application or locally, via your computer. For obvious reasons, the latter method is much more secure.
The Trezor Model T itself most resembles an old-school stopwatch with dimensions of 64×39×10 mm. It comes equipped with its own screen and can connect to your computer via USB cable, and offers a microSD card slot if you want to add encrypted storage directly to your hardware wallet.
The main drawback of the model, however, was the lack of Bluetooth support. The issue is rather moot, though. Yes, Bluetooth would have greatly expanded the possibilities of using the crypto wallet, but at the same time it would have become another loophole for attackers.
The Trezor Model T can be purchased for $189.
SafePal S1
The cold wallet supports 19 blockchains and over 10,000 tokens, while striking a good balance between ease of operation and security. It looks like an MP3 player and offers a colour display with an underlying joystick for navigation and a camera for scanning QR codes when signing transactions.
SafePal S1 is not like a usual cold wallet on a flash drive. Unlike other representatives of our top, it is completely devoid of wired and wireless interfaces for data exchange, providing complete security against traditional attacks. The device supports 34 blockchains and over 30,000 tokens. It has its own 400 mAh battery and can operate in temperatures ranging from −20 to +70 degrees Celsius.
The price of SafePal S1 is quite affordable — $49.99.
Conclusions
Hot and cold wallets differ from each other, first of all, by their level of security. Cold wallet is the most reliable way to save your cryptocurrency. But with all its security, this method is not convenient. Therefore, many advanced users prefer, so to speak, a hybrid way of storing coins, using a hardware wallet for basic savings, and a hot wallet for momentary spending. And, in our opinion, this is the surest way to secure your savings.
The best hardware wallets for cryptocurrency can be found just above. For those who do not want to spend money to buy a full-fledged hardware wallet, we advise you to remember the “grandfatherly” methods of storing important information (in our case — private keys) on paper. And a more modern way of storing them can be a computer or a smartphone without Internet access.