When it comes to cryptocurrency service providers, there are two major ways that crypto wallets that are used, each with the slang term “Hot Wallet” and “Cold Wallet”. But what are hot wallets and cold wallets?
Put simply, cold wallets are wallets that are completely disconnected from the internet, servers or other such activity. They are cold in the sense that they are not connected in any way, shape or form to the outside world in a way that no experienced hacker would be able to penetrate. In layman's terms, cold wallet storage is as good as bulletproof for Bitcoin security.
But with any solution, there will always be trade-offs. The high security that is offered by Bitcoin cold wallet solutions comes with it the price of inconvenience for consumers and providers alike. By having Bitcoins or other cryptocurrencies removed from internet servers and deep into cold storage, it can be a time consuming process to connect the coins back to the internet to process withdrawals or other such activities to make the coins actually useful.
Enter hot wallets. Hot wallets are wallets that are actively connected to the system, domain and/or server to expedite services quickly to consumers and without concern to hosting providers of a Bitcoin casino, Bitcoin exchange or similar service. By hosting the coins online, access is very quick and the process can be automated making the service of extremely high quality to consumers while freeing up the companies time to worry about other concerns than processing deposits and withdrawals all day long.
Similar to cold wallets though, there is a drawback to hot wallets. And that is that the moment that any Bitcoins or other cryptocurrencies are connected online to a server, there exists a chance that an experienced hacker may find an exploit in the company's code to withdraw the company's crypto directly to their own Bitcoin wallet. This type of event is all too common in the crypto world as exchanges and many other services get hacked and the first thing to go is invariably the amount of funds that are held on their Bitcoin hot wallets.
The most common and best Bitcoin security solution that exists today involves a hybrid use of both hot wallets and cold wallets. We can break this down into relatively simple terms using dollars for example.
Imagine, if you will, that a company is holding onto $10 million dollars in crypto assets. But the company figures that on a day-to-day basis, there's an over 90% chance that it will only ever need to access $100,000 worth of assets at most. The company then decides to draw a fairly arbitrary line in the sand where they partition $9.9 million dollars of their crypto into their cold storage “unhackable” solution and keep $0.1 million dollars on their online hot wallet.
In the above case, in the majority of their days this fictitious company will keep 99% of their funds secured in cold storage so that in the unfortunate event of a hack they will not come close to losing everything either for themselves as a company or lose their client's assets. Meanwhile the vast majority of cases will allow the company to pay out their client's withdrawals nearly instantly as almost all of their standard operations will fall well within the $100,000 they have set aside in their hot wallet.
While the hot and cold wallet solution is by no means a perfect solution, it is a good enough solution to a more complicated problem which addresses a good amount of security concerns while also providing a fairly good customer experience with expedited Bitcoin withdrawals when the nominal amounts are smaller in size.
The MintDice Bitcoin casino operates on the same logic as has been described up above. While MintDice uses a hot and cold wallet solution, not all online crypto casinos will do such things. So make sure that if you do decide to use any particular Bitcoin casino that they, among other things, use this system for both your own security of funds but also for a higher level of customer satisfaction.
With MintDice, we keep an amount of funds on the hot wallet that we expect to cover the majority of cases when it comes to customer withdrawals. For larger withdrawals, they will often times exceed the balance of the hot wallet which will then require a cold wallet balance transfer. These types of situations are mostly thought of as “good” because the overall protection offered to higher value clients is worth the slightly higher temporal cost associated with the longer withdrawal times.
Things are also taken a few steps further at MintDice for your own security as well. First, it must be noted that many clients use our Bitcoin casino investment services and use MintDice for long term storage. In this particular and more unusual case, it cannot be stressed how important proper high security cold storage solutions are on MintDice which we take very seriously. Second to that, MintDice also performs multiple checks on all outgoing withdrawal requests which helps to protect it's hot wallet and cold wallet balances from multiple forms of attempted theft or other shenanigans.
All of this is done seamlessly without the consumer even knowing, which is our ultimate goal at MintDice: Peace of Mind! We want to provide the highest level of service and Bitcoin security to our customers so that they can feel comfortable with the world's best Bitcoin casino, MintDice.
Article originally posted on the Bitcoin News blog.