The simplest way to describe the difference between a cold wallet and a hot one is this: hot wallets are connected to the internet while cold wallets are not. Most people who hold digital assets have both cold and hot wallets because they are designed for different purposes.
Hot wallets are like checking accounts while cold wallets are similar to savings accounts. People who have digital assets keep a small amount of money in their hot wallets for purchasing stuff. They keep the vast majority of their digital coins in their cold wallet.
Accounts within digital asset exchanges like Poloniex and Bittrex are considered hot wallets because these companies hold your funds in their infrastructure and servers. If a hacker drains Poloniex and you have an account with them, then there’s a good chance you will lose your money because Poloniex in actuality holds your funds.
There are lots of choices when it comes to hot wallet. There’s Jaxx, Exodus and recently, Blockchain.info added Ether to their wallet. These wallets have their own pros and cons. Exodus for instance doesn’t store your private keys on their servers and operate locally on your desktop. This is great if your PC isn’t compromised. A wrong single click and you can infect your desktop with a malware and risk the security of your coins. It is OK to use these hot wallets to move small funds flexibly but it isn’t recommended for a long term storage of a significant amount of money. Even Jaxx recommends that you must not use it for storing large amount of digital money.
The safest way to store your money is to create a cold wallet where you hold your private keys and only you and you alone have access on it. There are multiple ways to get an Ethereum cold wallet address. The best and most secured way is to buy hardware wallets like Ledger Nano and Trezor with prices ranging from ₱3,000. Ledger Nano is the cheapest and has the highest positive reviews from both Bitcoin and Ethereum communities. Hardware wallets are probably the most robust form of security you can have for your Bitcoin, Ether or any other cryptocurrency. They allow you to send and receive on any computer, even one that is compromised with malware. They have the pros of both the hot and cold wallet such as transaction flexibility and safe storage. The way the hardware wallets achieve maximum security is by storing your private key and signing your transactions offline so someone trying to “hack” your wallet remotely won’t be able to do so.
Some of us can’t afford to buy hardware wallet but there is an easy and most importantly FREE method to create a cold wallet. Using MyEtherWallet is by far the easiest but secure way. MyEtherWallet is open-source code and can be downloaded for offline use or on an air-gapped machine if you’re so inclined. It does nothing more than interface with the existing command line interface of Ethereum. For your security, scan your whole computer for malware and keyloggers before creating a wallet.
Creating your wallet
1. Go to https://www.myetherwallet.com (Bookmark this page to avoid clicking phishing sites in the future)
2. On the Generate Wallet screen, create your password. I recommend using several words as your password.
- MAKE SURE YOU WRITE YOUR PASSWORD DOWN AND KEEP IT SOMEWHERE SAFE.
- It is not recommended that you keep it on your computer.
3. You should see this information. Download your UTC/JSON file and make a duplicate copy for back-up.
4. After that, your private key will be revealed. There will be an option to print your paper wallet, and your private key QR code. You can print multiple copies of it and hide it for safe keeping.
5. Click next to save your address.
6. Unlock your wallet that you just created using the keystore file you just downloaded in order to see your address. You will be prompted to enter your password.
7. Your address will now be displayed, along with some other additional information. This address is what you will use to send ETH or Tokens to this account.
(From: MyEtherWallet Knowledge Base)
Now that you have your own cold wallet, you can now send your Ether from any exchanges to your public address. Always send a small amount first to test if everything is fine.
Things to remember:
- Keystore file
This is the encrypted private key(JSON/UTC) you downloaded earlier. You will need to have your PASSWORD handy to unlock your wallet with the Keystore file. This is the safest way to open your wallet without exposing your private key text online.
- Your address
This is your public address. Ethereum can be sent to you and requested from you at this address.
Tip: You can check the balance of your wallet without opening it on MEW. Just enter your public address on etherscan.io.
- Unencrypted private key
This can open your wallet WITH JUST THE PLAIN TEXT. Never share this with anyone. Do not store it on your computer. If you want to keep it, write it down and keep it in a safe place.
- Paper wallet
This will contain all of your account information including your private key in a printer friendly form.
Always have multiple backups of your private key!
Without it, your ETH and tokens will be lost forever. MyEtherWallet cannot recover your private key or password, access your account, move funds, recover funds, nor reverse transactions. They are not a web wallet. They are a client-side interface that allows you to interact with the Ethereum blockchain. Seriously. Back up your keys.
You can also download the official Ethereum wallet on the Ethereum website but you need to run your own node and syncing can take weeks to finish, even months in my case. I didn’t discuss it here because it is mainly used by DApps developer and downloading the whole 4 million blocks is just not worth it, except if you are a miner.
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