What is the difference between Cold and Hot Storage? Storage is one of the most important steps to consider for anyone interested in cryptocurrencies. Indeed, once you have finally purchased your cryptos, you must place them in a place that is both safe and secure.
Two different storages
Security is a point to be particularly taken into consideration since, unlike traditional money, crypto-currencies are virtual and whose operation is based on the blockchain. Thus, they are constantly under threat from hackers and therefore require a whole new digital storage system called crypto wallets.
Like the physical wallet, the cryptocurrency wallet is used to hold and transfer virtual funds. On the other hand, digital or crypto wallets are quite different in their operation from ordinary wallets. They consist of strings of data appearing in the form of public and private keys, whose role is to enable holders to receive and transfer their assets.
There are then two different types of storage systems for the crypto wallet: Hot Storage or “hot storage” and Cold Storage or “cold storage”. While it is true that one of these systems is indeed more secure than the other, each of them has advantages and disadvantages that should be defined.
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Cold Storage
Cold Storage is the very first storage system to have emerged with the appearance of crypto-currencies. Very popular among investors, it is appreciated for the excellent security it gives to the assets of its users.
The Cold Storage system is relatively simple to understand. This is the practice through which a crypto-currency owner chooses to store them offline. The cryptocurrencies are then deposited on a particular device or via a method not connected to the internet.
Cold Storage is a technique designed for individuals wishing to protect their cryptos such as Bitcoin from any malicious intrusion attempt. In order to get rid of any possible risk, they choose to keep their assets in a wallet that cannot access the Internet.
Cryptocurrencies are, therefore “cold-stored”, either on a USB key or on an external hard drive for example.
Preferred storage?
In a market frequently plagued by uncertain risks (sudden disappearances of large quantities of tokens following the exploitation of security breaches), Cold Storage seems to be the only solution for wary investors. It is also the ideal storage method for trading platforms wishing to protect themselves against thieves.
Also, in order to minimize the risk of leakage and large-scale theft, the majority of managers of this type of platform opt for storing their reserve in Cold Storage. They then find themselves on fairly traditional media where their funds will be kept away from any web server and another computer.
Among the most popular Cold Storage systems are hardware solutions such as Ledger which is a device in the form of a USB key. It gives its users the opportunity to buy, trade, and invest in more than 1,000 different cryptocurrencies.
Besides Ledger, there is the Cold Storage Trezor model. It is a small device also compatible with more than 1000 cryptocurrencies. It can be used on both computers and mobile devices.
Cold Storage: Advantages and Disadvantages
If Cold Storage has survived since the creation of the cryptocurrency market until today, it is because it offers quite exceptional advantages to its users. This system gives them the ability to have full control over their private keys and assets.
Additionally, most cold storage methods end up on small, accessible devices. In addition to being able to transport them anywhere in the world, they are generally compatible with various applications.
When it comes to security, the Cold Storage system is arguably the best, as the private keys, it holds never leave the device. Every transaction made is local to make devices less vulnerable to cyberattacks.
However, for all its advantages, Cold Storage also has disadvantages. First of all, hardware wallets are very expensive. While it is true that there are models at lower prices, they are generally not to be trusted.
Next, note that transfers and exchanges between cold storage devices are slightly heavier than for online wallets. Finally, Cold Storage has the same disadvantages as all hardware devices. They can get lost or degrade over time.
Hot Storage
Hot Storage or hot storage has existed since the development of cloud-related technologies and the cryptocurrency market. There are many Hot Storage services available today for free on desktop and mobile devices.
Hot Storage is the practice of storing private keys online.
Hot Storage is the practice of storing private keys online.
These are essentially storage solutions whose operation is based on the use of devices directly connected to the Internet. The Hot Storage system is mainly available on software wallets.
While Hot Storage is a system with a lot of users, it is not always satisfactory for the cryptocurrency community. Indeed, its mode of design is based on constant exposure to the Internet, and it presents great risks of attacks by hackers.
The latter do not hesitate to initiate attacks very frequently on all online wallets that offer them the slightest security breach. We have also seen many phishing attacks allowing a hacker to remove all the contents of a user's wallet.
Among the most popular wallets to have adopted the Hot Storage system are several software programs such as MetaMask. It is an extension present on the majority of web browsers where it is possible to store different cryptos.
Exodus is another software, available not only on PC but also on mobile. It connects directly to the Exodus decentralized exchange platform and is compatible with over 150 cryptocurrencies.
Hot Storage: Advantages and Disadvantages
Despite the lack of confidence that Hot Storage inspires, it still has quite substantial advantages. For starters, it has an atmosphere that's far friendlier than Cold Storage. Indeed, is almost always connected to the Internet, they are very easy to access and easy to use. Moreover, the majority of hot storage software and platforms are free.
In terms of cons, security is the main issue of Hot Storage. While it is true that these services do their utmost to make their wallets more secure, they remain more vulnerable to hacking because they are exposed to the internet.
In addition, since they require an almost constant connection, some of the functionalities that these wallets can offer are sometimes inaccessible in certain countries or jurisdictions.
Hot vs. Cold: Which is more secure?
Since cryptocurrencies are blockchain-based, they will always continue to attract hackers. The main target of these malicious individuals remains the wallets integrating the Hot Storage, although the Cold Storage system is from time to time victim of attacks as well.
However, security measures to make the two systems less vulnerable continue to progress. There are several factors to consider when choosing between a Cold Storage wallet or a Hot Storage model.
Many people prefer to use a combination of the two options in order to get a transaction experience that is both reliable and seamless. It is then up to everyone to make their choice according to their objectives and preferences.
Security is a key point in IT and even more so in the cryptocurrency sector. Many attacks have taken place in recent weeks, for example, we think of a flaw that cost the Nomad bridge $ 190 million.
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