What are cold wallets and how we implemented them online

Posted on feb 26, 2020

In the usual sense, a cold cryptocurrency wallet is a hardware-software complex that provides secure storage of information that is needed to access funds on the wallet (in particular, sending). Hardware cold wallets are the most reliable storage tool today, protection is provided using the owner’s biometric data or additional data entered by him. Owning a hardware cold wallet is justified if you have a considerable amount of cryptocurrency, you are going to store them for a long time without implying frequent transactions.

In general, wallets are of the following types:

As we have already found out, the security of a cold wallet is guaranteed by the fact that the private key (in open or encrypted form) that is used to spend money is stored outside the network, or on a device that does not have access to the network.

We have developed a mechanism that allows, as far as possible, in terms of security, to approach the storage of coins in a cold wallet, but to maintain the convenience of an online wallet. For each of the cryptocurrencies in the wallet, the second version of the wallet is available - cold. Its peculiarity is that the private key is not saved when creating the wallet, but is immediately encrypted using AES-256 (a symmetric block encryption algorithm that is accepted as the encryption standard by the US government). The key for decoding the private key string remains on the server side and the encrypted string is sent to the client. In this case, it turns out that the private key was not transmitted in clear text over the network and was not stored anywhere in the clear.

After the client should save the received string in several reliable places. It is worth noting that getting the received string into the hands of an attacker will not allow him to use the funds without having access to the owner’s account. Indeed, decoding AES-256 in the foreseeable future is impossible.   The account owner can observe all incoming operations in the wallet without entering this line. When it becomes necessary to use the funds, the owner will need to enter this line at the stage of creating the transaction (as well as the payment password). After a successful transaction, this wallet will be moved to hot, the decoded private key will be saved. To continue safe storage, the owner should create a new cold wallet and send funds to it.

At the moment, this function is available for Bitcoin wallets, in the future this type of wallet will be available for all new cryptocurrencies in the account.

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