There are a lot of exchanges and by increasing the number of bitcoin exchanges competition also increases and the first preference of all the exchanges to provide a user-friendly interface with strong security and competition is based on security.
Since users of bitcoin are now more aware, they know about the hacking attacks and they know how much security important for them because the value of bitcoin is very high if they will lose one bitcoin they will be at a huge loss.
In developing countries, the value of bitcoin is very high and it is difficult for middlemen to bear the loss of bitcoin. So they choose the bitcoin platform very carefully.
The for every exchange security is a very important aspect and if any exchange provides more security than other exchanges in the market then people use the service of that exchange because people want more security.
The reputation of every exchange depends upon the security level. If you are using a bitcoin exchange and you have lost your bitcoin by using that exchange then the reputation of that exchange will decline and people will move to some other bitcoin exchange.
This is the power of social media, the person who lost his bitcoin will upload a post on social media then people will leave that exchange.
Cold Storage and Hot Wallet
Protection of the user’s bitcoin is the main work of every exchange and they try different methods to protect the funds of bitcoin users with new techniques from the hacker and other security breaches and malware attacks but the most powerful method of securing the funds in cold storage and hot wallet.
We will discuss these two methods one by one what is cold storage and hot wallet and how they will help to protect the bitcoin at Crypto Engine.
Cold storage means storing without internet. In simple words, it is cleared from the name of the term “Cold Storage” cold means where there is no internet and storage means a place of storing something.
So cold storage means you don’t need to connect with the internet to store your bitcoin. You can store your bitcoin offline. Offline? yes offline, it is possible to store your bitcoin offline.
Take an example to understand in a better way, It is like a bank, that stores your money in a strong locker with many layers of security instead of keeping it on the desk where they sit. Keeping on the desk is very risky but the money will be safe in the locker.
Cold storage works the same as a bank’s locker and protects your money offline.
Benefits of using Cold Storage
There are the advantages of the following method of using cold storage:-
- Cold storage is an offline way to store your bitcoins which is very protected than online mode.
- You can store your bitcoin on a USB or computer server.
- As your Bitcoin is stored offline, therefore there are no chances of hacking attacks or unauthorized access.
Hot Wallet is like the liquidity reserved by the bank. In simple words, it is saved in the form of liquidity to cater to the request of withdrawal of bitcoin from the users.
There are many users of bitcoin and there are a lot of transactions happened in a single day, it means there will more withdrawal requests and if there are more requests by the bitcoin users it means there need more liquidity and keeping more liquidity to cater to this request is called a hot wallet.
It is very necessary to keep bitcoin reserve because if there will no bitcoin in reserve then it will create problems for sellers and buyers and from this inconvenience, they will try another bitcoin exchange.
From the above information, we have learned that how you can how exchange try to compete with each other by providing different security techniques and the most powerful method for securing bitcoin in cold storage, which means you can store your bitcoin offline on the exchange by using USB or computer server since it is not connected with the internet there are no chances of hacking attacks and cracking attacks.
Hot wallet is used opposite to cold storage because it is always connected with the internet and it stores funds as a reserve to cater the withdrawal requests.