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If you invest in cryptocurrency, you need a digital wallet to secure your assets. Exchanges like Coinbase offer their own wallets, which gives their users the convenience of securing their coins, tokens and NFTs right on the same platform where they buy, sell and trade them.
But the most convenient option is not necessarily the safest.
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There’s an alternative option called a cold wallet, which provides an extra layer of security that standard digital wallets can’t match. When used correctly, the best cold wallets are virtually unhackable, which is why veteran crypto traders swear by them. There’s more than one kind sold by more than one company, so research is key.
If you’re considering securing your digital holdings with a cold wallet — which you should if you invest in crypto — here’s what you need to know.
What Is a Cryptocurrency Cold Wallet?
A cryptocurrency cold wallet — sometimes called a hardware wallet or cold storage — is a small physical device that secures digital assets like NFTs and crypto safely offline when not in use. They offer an alternative to traditional digital “hot” wallets, which are also known as software wallets, online wallets or hosted wallets. Hot wallets are online 100% of the time and their owners must be online to access them.
The best hot wallets utilize several layers of enterprise-level security features that can repel all but the most sophisticated hackers. But because they exist entirely in the online space, they are still susceptible to attacks from online criminals, some of whom have proven able to bypass those measures and steal assets from digital wallets. As crypto pushes farther into the mainstream, these kinds of attacks are becoming both more frequent and severe.
According to Appdome, online criminals stole $1.9 billion worth of crypto in the first seven months of 2022 alone, an increase of more than 60% over the year before. One user lost $600,000 worth of bitcoin after downloading a so-called Trojan app that bypasses verification systems and initiates transfers that the user can not control or stop.
That’s just one example. Hackers can also infiltrate digital wallets by:
- Stealing locally stored private keys and passphrases
- Maliciously using Android Debug Bridge (ADB) ports and so-called dynamic instrumentation attacks
- Launching “man in the middle” (MiTM) attacks on crypto applications
- The use of malicious instrumenting
- Harvesting private keys and passphrases
None of these kinds of attacks would be able to compromise the integrity of a “cold” hardware wallet.
Is a Cold Wallet Really Necessary?
A cold wallet is not necessary. You can buy, sell, trade, stake and store cryptocurrency, invest in NFTs or participate in any other facet of a blockchain ecosystem without investing in a hardware wallet. In fact, most crypto investors still rely on hot wallets, which predate hardware wallets — and it’s not hard to understand why.
Hot wallets are easy to set up, easy to use, they don’t require you to own any physical hardware and, best of all, they’re typically free.
Before you decide, it’s important to understand the basic functions that all crypto wallets perform.
Neither hot nor cold wallets “store” cryptocurrencies, as many people mistakenly believe. All cryptocurrencies are stored in the blockchains where they were created. </…….
Source: https://www.gobankingrates.com/investing/crypto/cold-wallet/