Hot Wallets vs. Cold Wallets

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Overview
Difficulty
Intermediate
Duration
36m
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19
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Description

This course will help to ensure you have the most secure cryptocurrency setup possible, which is fundamental in ensuring that your cryptocurrency isn't vulnerable to hackers.

Transcript

Welcome to this lecture, where we'll be discussing the differences between hot and cold wallets in detail. This will help you understand just how these wallets are different. Now, we've talked a lot about hot and cold, what is previously, and you might have already figured out what they mean. Hot wallets are wallets where the private keys are in a device that's facing the Internet, and cold wallets are wallets where the private keys have never contacted an Internet-facing device. You can see that the definition doesn't quite cover all of the possible scenarios. For example, what if the private keys were created on a machine that faced the Internet, but while it was offline and the history was deleted from it before it came back online? Well, what if you took a cold paper wallet and plugged it into an online wallet? Hot and cold wallets are indeed a sort of spectrum which is defined by how sterile the environment you're using to generate and secure your keys is. Let's start with the easy part, hot wallets. You download an app, create a new wallet, back up your seed as we've demonstrated and bam! You've got yourself a properly backed up hot wallet, very accessible and easy to transact with. We recommend doing it on your mobile or tablet, because mobile operating systems are more modern than desktops, and most of them were designed with security in mind. And now for the challenging part, making a strong protected cold wallet. As we've said, cold wallets are a spectrum, and in this lecture, we're focused on giving you a great balance of very high-level security and the process that's manageable even if you don't have a lot of technical skills. So, here's how you can create a secure cold wallet. One: reset your device. Always good to clear out the memory for the paranoid. You can also go with a factory reset. Two: download the recommended wallet app, for example Bread Wallet from the Apple Store or MyCelium from Google Play. Three: set your device to airplane mode. This turns off your connection to the Internet. Four: go into the app and generate a new wallet. Five: back up your seed on paper with no one around, no cameras around, and type it into the app to make sure you backed it up correctly. Six: copy your receiving address to your device. Seven: get out of the wallet app, go into your phone app settings and wipe the apps data. Eight: remove the app from your device, and then nine: restart the device. And ten: you may get out of the airplane mode now. You're done. So, now what you have is a receiving address that is backed up by a passphrase, which you have written on a piece of paper. And this has actually never faced the Internet. You can also search for your address in any Blockchain explorer site like Blockchain.info, and see how much money it holds. So, you're now holding a piece of paper that's potentially worth a lot of money. And I know what you're thinking, "Why won't you tell us where to keep it?" Well, there's bad news and good news here. The bad news is that this is the one thing we can't and potentially no one can teach you. This is where the protocol that is Bitcoin ends, and your personal responsibility begins. You see if there was a standard for where to hide your seed, very quickly thieves would catch on to this standard and that will become the first place they'll look for. Also this may change depending on the situation you're in. If you're in a place where hurricanes hit year after year, the way you secure your seed backups will probably be very different than someone in other circumstances. The good news is we humans have a long history of securing papers and condense the values such as gold, from safes to stories about buried treasures to spy moving and so on. Be creative, but keep in mind that the number one reason people lose their cryptocurrency today by far is because they forget their passphrases, not when they are stolen. Join me in the next lecture, where I'll be going over how to choose a trustworthy cryptocurrency exchange when it comes to trading your tokens.

About the Author
Students
193
Courses
7
Learning Paths
1

Ravinder is an expert instructor in the field of cryptocurrencies and blockchain, having helped thousands of people learn about the subject. He's also the founder of B21 Block, an online cryptocurrency and blockchain school.

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