What is cold storage in Blockchain? All the information you need

Blockchain technology has many things for people to explore. The main question that arises is about the place where the money of the users is stored. For this, the developers of this technology have developed storage systems that help them store the data easily.

There are two types of storage in Blockchain; Heat and cold storage. Here we will discuss cold storage systems in detail, like what it is, how it works and more. The wallets involved in cryptocurrencies are digital. This makes them even more vulnerable to hackers.

Due to this reason, the developers of Blockchain technology had to do something the same. They had to ensure that people are able to trust Blockchain technology and store their money in the same through cryptocurrencies.

Therefore, they developed storage systems that provided them with highly advanced technologies to ensure that it would be difficult for hackers to access the same. The main item stored in Cold storage is the cold wallet and they have huge features that the users will be able to access in the same. With the help of these cold wallets, users can access their wallets offline and also prevent them from being hacked.

Cold Wallet/ Storage

Before starting with Cold storage, it is necessary to know that Cold Wallets are the other name for Cold storage. These are wallets that allow users to store cryptocurrencies. Along with that, it also gives them access to use the wallet in offline mode.

It is a digital wallet that stores the cryptocurrencies of its users on a platform that is quite different from the others.

It has all the features like the other storage systems, but what makes it unique from others is the fact that this platform is not connected to the Internet.

Therefore, users can also access the wallet in offline mode. The main reason for having a platform like this is to ensure that the wallets are safe.

Most of the hacking cases have appeared because of the internet and the developers created offline storage systems to ensure that the wallets remain safe from cyber attacks and anything else related to the same.

This type of storage system is mostly used by individual investors. But looking at its potential, it is even being used by some popular cryptocurrency exchanges as well.

Reasons to use cold storage

Let’s take a look at the reasons that will help a person know whether they need to open their cold storage wallet or not.

If a person has a bank account and money is stolen from their debit card, credit card or checks, they can easily reverse the same by contacting the customer service of their respective bank.

After talking to them about the same, the money will be credited back to the account within 1-2 working days. But it is not possible to track the transactions in cryptocurrency.

A person only learns that his money has been deducted; they do not realize who has received the same.

Therefore, this makes it difficult for individuals to recover the coins they have lost through crypto wallet theft.

The biggest reason behind the same is that there is no authority that controls cryptocurrencies. It is a decentralized network due to which the users are afraid of thefts in the same.

So this shows that there is a need to have a platform that protects the cryptocurrencies that individuals store in their wallets.

For example, there is a person who has his own Bitcoin wallet. If he makes a transaction, two keys, public and private, are given to him for the same. These keys help keep the individual’s account protected and they can easily access the wallet.

The private key is probably the main element as it is a sort of password that allows users to access their accounts. This private key is alphanumeric, and each user has the right to set it according to himself.

On the other hand, the public keys let the Blockchain network know where to send the amount and other details.

There are two parties involved in a transaction, i.e. buyer and seller. Both of these parties only need to share their public keys to make the transaction successful.

The public key is also known as the wallet address which helps the Blockchain technology to know about the address to which Bitcoins or other cryptocurrency should be sent.

As the payment is completed, the recipient will be able to access the funds he or she has received through the private keys. So it can be said that private keys are important to store.

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The difference between cold wallets and hot wallets

Many individuals would have thought about the difference between the cold wallet and the hot wallet. There are many ways in which both these wallets are different from each other. Although they have almost the same uses, there are a few differences in them.

One of the biggest differences between a Cold wallet and a Hot wallet is that Hot wallets always stay connected to the Internet. This means they are even more vulnerable to cyber attacks. But there are some other aspects as well where the hot wallets benefit.

The next difference between them is related to the cost. If a person opens their account in a Hot wallet, it will not cost them anything as the Hot wallet accounts are opened for free. But that is not the case in cold wallets or storage.

There are a few cold wallets that allow the user to open their account for free. But for the best ones, users will have to pay 100 to 200 US dollars depending on the type of hardware they need for the same. The better hardware costs more and provides more security.

People mostly prefer to use hot wallets as they are connected to the internet. Therefore, they are able to provide more uses and functions compared to cold wallets.

Due to this reason, these wallets are even increasing as a convenient way for anyone who is willing to keep their cryptocurrency wallet. They also do not need to do any extra steps to complete the transactions with tokens. It will be done easily within a few seconds or minutes depending on the network they are using to complete the transaction.

Our view

The Cold wallets are able to provide security that hot wallets are not able to. The security offered by hot wallets is reliable, but not as much as cold wallets.

Cold wallets use private keys, along with public keys that help individuals keep their wallet and cryptos safe. When the private keys are connected to the Internet (like Hot wallets) they are even more vulnerable to being attacked by hackers.

Once all the details are signed and sent online, it becomes easier for the hacker to target the same. But in case of cold wallets all these things are done offline due to which the hacker cannot target the same.