Cold wallets are USB-like hardware made to store crypto. These are also known as offline wallets because they aren’t connected to the internet. Going by this theory, paper wallets are also a kind of cold storage for the crypto funds. Paper wallets are basically pieces of paper that have the private and public keys of a person. Since paper wallets became outdated as the hardware ones came around, let’s just focus on the cold wallets for now.
Benefits of cold wallets
Here are the top two benefits of resorting to cold wallets:
Security factor:
You do not need to entrust any third party with the private keys. As the wallet isn’t internet connected, it is not under the risk of getting hacked. If you do not carry it around, it gets more difficult to steal. It is even possible to keep it in a bank vault or a safe.
Furthermore, you can enter the password on the hardware device instead of a PC that can be hacked. Hardware wallets come with proper pin protection. In fact, many of them also come with an addition level of biometric authentication.
Recovery phrase:
During the time of that initial configuration, you will have to note down a 12-to-24-word recovery phrase. It is unique and the device generates it. In case the hardware wallet is stolen, damaged, or lost, you can choose to get new hardware wallets for recovering the crypto assets or importing the recovery data in software wallets to receive the assets back on time.
The device itself configures the recovery phrase. It need not be offered in a written format or secured from any third-party source. Many unscrupulous sellers tend to forge the recovery seeds for accessing the funds. Thus, the best step to take is to purchase cold wallet devices directly from the manufacturers.
Disadvantages of cold wallets
Cold wallets have a couple of disadvantages, such as:
Delays:
The transaction might take some time, but accessing that cold wallet device will need more time. Furthermore, you probably will not use that in public places and won’t be able to use on the move. Thus, day traders tend to stay away from cold wallets.
Higher price:
Most online crypto-wallets can be accessed for free or come with a lower fee. However, cold wallets cost at least $100 on an average.
Limits:
Usually, they do not accept as many cryptocurrencies as the hot wallets. Thus, if you are into the cryptos that are yet to be popular, your cold wallet might not support it.
A cold wallet is not the variant for a day trader. As additional time and step is needed, active trading in a scenario where price fluctuates by the hour is not practical with hardware. It might also negatively impact the gains you have. You can talk to the experts at Crypto Genius to know more about this. In any case, exchanges offering hot wallet to the users tend to have cold storage for keeping the customers’ funds.