Wallets
are tools for online payments, usually in the form of an app. The wallet stores digital versions of debit and credit cards. So you don't have to enter your card information or have your card with you when you pay. you can also use it to store digital tickets and eVouchers. Setting up a wallet, whether cold or hot, is free of charge.
Cold and hot wallet: What is it?
When you buy your cryptocurrencies from an exchange, they are stored in your wallet. The wallet is a kind of virtual purse. However, it is not the "real" savings that are stored here, but the access keys for the currency.
"Hot wallets" are based on software and are available as an app or desktop variant. The crucial point: these types of wallets are connected to the internet. When you store your crypto assets in a hot wallet, your biggest advantage is that your money won't get lost if you forget your password. One disadvantage of a hot wallet is that you cannot use all the possibilities that cryptocurrencies themselves have to offer. However, this may change as the range of features supported by hot wallets gradually increases.
A cold wallet, in contrast, is a storage space that is not connected to the internet. It is a "real" storage medium that you can hold in your hand. The keys with which you can manage your digital money are stored offline. Of course, this considerably reduces the risk of hacker attacks.
Summary:
- Hot wallet: storage for cryptocurrencies that is connected to the internet.
- Cold wallet: storage for cryptocurrencies that is not connected to the internet.
To set up your hot wallet:
- Select a platform you trust. Your main criteria should be security, ease of use and compliance with government and financial regulations.
- Create your own account. Enter your personal details and choose a secure password. We also recommend enabling 2-factor authentication (also known as 2FA) as an additional safeguard.
What types of cold wallet are there?
Strictly speaking, the term "cold wallet" is a collective term, as there are different ways to store the key for cryptocurrencies offline. In principle, you can already speak of a cold wallet if you store the keys on a USB stick or even burn them onto a CD-ROM. However, this is not very secure because these storage media are exposed to various environmental influences. If the CD-ROM or the stick is damaged, the data is gone. And all your coins disappear with them.
There are currently three major brands of hardware wallets:
- Ledger
- Trezor
- KeepKey
Here's how to set up your cold wallet:
- Download the wallet app of your choice
- Create your own account. Unlike a hot wallet, you don't have to provide any personal information to create your own wallet. Not even an email address.
- Make sure to keep a written record of your private key. This is a string of twelve randomly chosen words. Keep the key in a safe place. If you lose or forget this twelve-word key, you will no longer have access to your crypto assets.
Special feature of cold wallets: Buying cryptocurrencies using traditional currencies (such as US Dollars or Euros) is not always possible with a cold wallet, so you have to transfer crypto assets from elsewhere to your cold wallet.
(Source: Wikipedia, among others)
