Co-founder and CEO of the American crypto currency exchange Coinbase Brian Armstrong decided to debunk four of the most common misconceptions about custody solutions for cryptocurrencies. His article was in the column of The Ledger of Fortune magazine.
Cold storage involves the storage of cryptocurrency and private keys in offline mode and thereby protects them from hacker attacks. Hot storage refers to storage of crypto-currencies on the device with an active Internet connection.
The first argument of Armstrong in favor of “hot” storage is the need to have quick and direct access to cryptocurrencies, when it is necessary to make any transaction. He notes that some platforms allow users to conduct off-exchange trading with the use of delayed calculation. That is, the funds remain in cold storage until just before execution of the transaction.
Not so long ago there appeared information that the blockchain company BitGo, in cooperation with the platform for OTC trading in Bitcoin Genesis Global Trading provides the same opportunity to sell cryptocurrency without having to withdraw from cold storage.
The second argument was made in favor of crypto-currencies based on PoS. As he notes, participate in the PoS network and profit with the share does not necessarily imply that the coins should be stored in a hot wallet.
The CEO gives the example of cryptoprocta Tezos, which allows token holders to delegate their share of the so-called “Baker”. He holds a small part of the funds for a hot repository, which allows to distribute the rewards, but the client tools are securely stored on offline storage.
Thirdly, Armstrong explains the relationship between the holders of one key and whether the storage of hot or cold. According to him, the creation of custodial decisions with multiple keys would be a more reliable measure. Regardless of whether funds are kept offline or on the hot wallet.
In the end, he mentions hardware security modules. According to Armstrong, they are on a level of reliability close to cold storage, and can certainly give the benefit of the custodian of the architecture as a whole. However, they cannot be compared.
Any hot storage can be modified so that funds will be kept in complete safety. Isn’t that right? Personally, I prefer to keep a certain amount of hot wallets. I’d like to risk all the savings while these points are not worked out? Rather no than Yes.
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