Hot wallets vs. cold wallets.

By  Artem Yarosh 625 13 Jan 2023
Photo - Hot wallets vs. cold wallets.

Choosing the proper cryptocurrency storage will help keep your assets safe.

Cryptocurrencies are built on the blockchain, so you need programs called wallets to store them. The right decision will help keep assets safe.

A crypto wallet allows you to store and transfer funds. Wallets have two main components: public and private keys, allowing owners to receive and transfer their crypto assets. You use the public key to send and receive cryptocurrency and the private key to confirm transactions and verify ownership of the crypto wallet.

A hot wallet is a software wallet that stores public and private keys online.

Types of hot wallets

There are two types of hot wallets: exchange-based (when a user creates an account in a centralized exchange that acts as a user's funds custodian) or a wallet app installed on a personal computer or phone. In this case, your seed phrase is the private access key to your wallet.

Advantages of hot storage:

Accessibility: The ability to access the wallet from different computers or smartphones.

Unlike hardware cold wallets, mobile cryptocurrency wallets allow you to make fast transactions.

Convenience: If you use a hot wallet linked to a specific exchange or blockchain, you are comfortable interacting with that ecosystem.

Cons of hot storage:

Security: Hot wallets are vulnerable to hacker attacks because they store public and private keys online.

Availability: Since they require an internet connection, some wallet features may be restricted in certain countries or jurisdictions depending on local laws.

A cold or hardware wallet is a small device that resembles a USB stick. It is designed to store several types of cryptocurrencies.

Cold wallets are the most secure crypto wallet that stores your private keys offline. They are not connected to the Internet, so they will not be hacked by hackers (unless they have access to your seed phrase or the hardware wallet itself).

Examples of famous cold wallets

Trezor Cold Wallet

Trezor Cold Wallet

Ledger Nano X Cold Wallet

Ledger Nano X Cold Wallet

Pros of cold storage:

Portability: Cold wallets are small plug-in devices that can be carried around and used to log into decentralized programs.

Security: Private keys never leave the device, and transactions are signed locally, making devices significantly less vulnerable to asset theft.

Autonomy: Cold storage allows you to be the sole custodian of your crypto assets.

Cons of cold storage:

Cost: Hardware wallet prices start at $79, unlike free hot wallets.

Security: If your cold wallet is lost or stolen with your seed phrase, you will lose access to your assets. So, remember to keep your seed phrase secure, offline, and on paper.

Hot or Cold: Which is Safer?

Many people use a combination of cold and hot wallet options to prevent their assets from being stolen.

Hot wallets are convenient for daily use. Cold wallets guarantee maximum security. Both wallets support a wide range of cryptocurrencies.

Remember, not your keys – not your coins!