What are the hot wallets in crypto currency
Anyone who owns expensive jewelry, gold or a lot of cash can keep their valuable property either privately in a safe or externally in a safe deposit box: Such security measures protect against theft. The situation is similar with cryptocurrencies such as Bitcoin. These are popular targets for hacker attacks, so consumers should choose a secure Bitcoin wallet.
What types of wallets are there?
There are hot wallets and cold wallets. The former are those that are based on software and are connected to the Internet - so they are accordingly vulnerable. Hot wallets exist in the form of exchange wallets, mobile wallets and desktop wallets.
- Since these are not connected to a computer at all or only briefly, they are considered to be particularly secure.
Danger: Hackers repeatedly steal Bitcoin in the millions. For example, in 2018 when thieves looted digital currencies worth almost 550 million US dollars on the Coincheck crypto exchange. It is therefore advisable to transfer your own cryptocurrencies to a cold wallet - one that is not connected to the Internet. In addition, should be bought - so the purchase of a possibly manipulated device is excluded.
Why are there different wallet types?
The individual wallets offer advantages and disadvantages: It is often even worth using several wallets at the same time. Those who trade daily benefit from a desktop wallet - those who want to use cryptocurrencies as a means of payment should consider using a mobile wallet - and those who see their Bitcoin as an investment should use a cold wallet or a paper wallet.
Tip: In any case, it is advisable not to leave the majority of your own cryptocurrencies on an exchange wallet. There, investors have the slightest control and do not have the private key - the private key is the guide to your own cryptocurrencies on the blockchain and validates transactions.
Hardware wallets put to the test
Hardware wallets combine the advantages of secure storage with those of simple transactions. They look like a USB stick or an external hard drive and work like a kind of mini-computer. They are specially designed to store cryptocurrencies.
How does a hardware wallet work?
Hardware wallets do not store the actual cryptocurrency - this is always on the blockchain. During the installation process, the hardware wallet generates a seed: It usually consists of 12 or 24 words - the hardware wallet only contains information about the word combination, i.e. the seed.
If there is a transaction process, the words form the private key, which then serves as a one-time digital signature - this allows users to validate transactions on the blockchain.
Processes of a transaction
The hardware wallet is secured by a PIN - if you connect the hardware wallet to the computer, you have to enter it: Only then does the user get access.
The hardware wallet ledger, for example, is dependent on computer software. This determines the payment terms for the wallet: i.e. the exact number of cryptocurrency, the public keys and the addresses. The transaction is then validated within the wallet.
After confirmation by the user, the transaction is automatically signed using the private key and the digital signature is sent back to the software.
Private keys never leave the hardware wallet
The special thing about this process is that the words or the private key are never open - the process takes place exclusively within the hardware wallet.
Note: The combination of words is crucial for access to your own crypto currencies. If the hardware wallet is defective, you can still have your coins with the words and their correct order.
Ledger Wallet: Nano S & Nano X
The best known hardware wallet is the ledger. The company currently offers two models on the market: the Ledger Nano S for 59 euros and the Ledger Nano X for 119 euros - the provider does not currently list the Ledger Blue on its website.
The biggest difference between the two models is the number of apps that can be saved on the stick. In contrast to the wallet from Trezor, the competition from Ledger requires storage space for software applications that are involved in the transaction process.
With the Ledger Live App on the computer or smartphone you can manage your Ledger Nano S or Ledger Nano X. If you have bought Bitcoin on a crypto exchange such as Binance, you can search for the Bitcoin App in the Ledger Live Manager. When setting up, this can be connected to the hardware wallet. In order to receive Bitcoin, the receipt must be confirmed within the Bitcoin app and the address must be copied. Now the transaction is still to be validated by the Ledger Hardware Wallet at the push of a button.
IOTA's Trinity requires more memory than other apps
Ledger's products are currently the only hardware wallets that support IOTA. Since the Trinity Wallet requires a lot of storage space, the Nano S fills up quickly: Depending on the size of the software, there is space for only 3 to 20 applications. However, the apps are easy to install and uninstall -. However, some users find this disadvantageous.
The Nano X, on the other hand, offers space for around 100 apps. In addition to IOTA and Bitcoin, Ledger supports almost all cryptocurrencies available on the market - in total, the compatibility amounts to over 1,500 coins.
- 2 models: Ledger Nano S & Ledger Nano X
- Price from € 59.00
- Over 1,500 coins supported
- CC EAL5 + and ANSSI certified
Nano X with Bluetooth access
Another difference between the two models Nano S and Nano X is the connectivity to the control units: The Ledger Nano X offers the great advantage of transmission via Bluetooth with the Ledger Live smartphone application - thus mobile trading is possible. This is another reason why the Nano X is equipped with a battery.
State authority validates security
The devices are relatively uncomplicated to use - but they still offer the highest security standards: Without physical manipulation of the security chips within the product, access by third parties is as good as impossible. This is even confirmed by France's National Agency for Information System Security (ANSSI), which certified the ledger.
Note: If the PIN for the Ledger S or X is lost, users can reset the device and restore it with the help of the 24 words - a new PIN can be assigned. In this case, the ledger can be installed as a new device after the reset. If the PIN for the Ledger Live software (optional) is lost: a new installation of the software and corresponding reinstallation of the apps via the Ledger Wallet is possible without any problems.
Trezor Wallet: One & Model T
Like Ledger, Trezor currently has an inexpensive and a more expensive hardware wallet in its portfolio: The Trezor One is available for around 48 euros and the Trezor Model T for around 149 euros.
Instead of apps that have to be installed on the hardware wallet for transactions, the processes at Trezor run via its own web service. The hardware wallet serves, so to speak, as an interface between the web service and the seed.
The Trezor One and Trezor Model T models differ significantly. The Model T impresses with a touchscreen and a slot for a micro SD card - the cheaper version, on the other hand, has a small display and two buttons for usability.
- 2 models: Model One & Model T
- Price from € 49.00
- Over 1,500 coins supported
- CE & RoHS certified
When it comes to the number of compatible cryptocurrencies, Trezor allows its customers to store over 1,500 coins. In addition to Bitcoin, the Trezor Model T supports all common crypto currencies - with the exception of IOTA. The Trezor One makes several exceptions: Ripple, Monero, Cardano or EOS, for example, are not available, which is a disadvantage.
Everything is open source
Trezor relies on open source - both the software of the web service and the Model T are transparent in their source code and users can work on it collaboratively: This also ensures that there are no hidden back doors.
Lots of extras
In general, the Trezor Model T stands out above all for its additional features: For example, with a Shamir backup, the seed can be divided into different parts - it therefore represents a further level of security. The new parts of the original seed consist of 22 or 33 words, that do not belong to the BIP-39 collection. In order to restore such a wallet, a certain number of the fragments would have to be merged.
Danger: Simply dividing the seed, such as splitting up and storing the words 1-8, 9-16 and 17-24, is strongly discouraged. The encryption level is canceled and the security is severely weakened.
Both the Trezor One and the Trezor Model T are considered very safe. In addition to a PIN and a number of additional standards, Trezor products are validated by the community. The use is very simple and intuitive.
KeepKey from Shapeshift
The cold wallet KeepKey from the Swiss company Shapeshift relies on a modern design and a large display. The display is not a touchscreen - a small button is responsible for its usability. The product currently costs around 49 euros.
To carry out transactions and manage the processes, KeepKey uses a web-based platform from the manufacturer Shapeshift. The layout is clear and easy to use for beginners. This platform is also compatible with Ledger and Trezor devices.
- Price from approx. 40.35 € (49 $)
- Over 40 coins supported
- Touch screen
Suitable for newbies
In general, setting up KeepKey and using it is relatively simple and only requires a few minutes of training. After the PIN has been assigned and the seed has been saved, the device is ready for use.
KeepKey supports the most famous cryptocurrencies such as Bitcoin, Ethereum or Ripple - IOTA, for example, is missing. The products from Ledger and Trezor do better here.
When it comes to security, there are no concerns about the KeepKey Hardware Wallet either: Although most of the security-related entries are made via the computer, this procedure is considered secure thanks to the encryption.
Paper wallet as an alternative
A paper wallet is also a cold wallet. Since the private keys are stored here on paper, there is no connection to the digital at all - except when the keys are created. This is also where the biggest security gap lies: While the keys are being generated, the website code should run offline. It is also advisable to set up a new operating system beforehand in order to reduce the misuse of spyware.
Step by step to the paper wallet
- On sites such as Walletgenerator.net, it is possible to create a public key and a private key in order to store the Bitcoin there. The website can be downloaded to run offline.
- To generate the keys, move the mouse back and forth. The private key consists of a random combination of letters and numbers, which is created from a pool of 2 to the power of 256 possibilities.
- You can then print out the keys and their associated QR codes. Alternatively, you can just write it on a separate piece of paper.
- To ensure the long-term protection of a paper wallet, it should be laminated or at least kept in a transparent film.
Both hardware and paper wallets are considered very secure. In contrast to hardware wallets, paper wallets are connected at no additional cost - but the effort is slightly higher. Although paper cannot suffer technical defects, it can be found, stolen or destroyed.
Cold wallets offer maximum security
Cold wallets are the safest solution to store your own cryptocurrencies - hardware wallets are particularly convenient, even if they are associated with financial expenses.
The wallets from the comparison are all unreservedly recommendable - only the Ledger Nano S is not ideal for investors who hold a lot of different crypto currencies due to its small memory - installing and uninstalling the necessary software can be a nuisance. All three providers can guarantee the most important aspect, the security of their own coins.
- 2 models: Model One & Model T
- Price from € 49.00
- Over 1,500 coins supported
- CE & RoHS certified
Common questions about cold wallets
After successfully buying Bitcoin on a crypto exchange, the digital currency is first on the platform's database servers - the Exchange Wallet. From there, investors should transfer cryptocurrencies to a cold wallet as soon as possible.
The providers take different security precautions: As a subsidiary of Boerse Stuttgart Digital Ventures GmbH, blocknox GmbH manages the cryptocurrencies of customers of BSDEX and the Bison app. Coinbase and Kraken store the majority of digital assets on offline storage. Other providers such as Binance or eToro offer their customers a personal wallet.
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