Hot wallet Vs Cold wallet

Anisa Batabyal
| 30 April, 2020 | 2 min

There are many things to consider when you want to buy and hold cryptocurrencies. Among the numerous important aspects to consider is the storage of the digital assets you hold. There are so many options that are used to secure your cryptos, and it becomes confusing to decide which to use. When you are deciding on the storage options, two terms are used the most, hot wallet and cold wallet. But what’s the difference? Read below to learn more: 

What are Hot wallets and Cold wallets?

A hot wallet is online storage for your digital currency and was introduced along with the launch of Bitcoin. They come in two flavors: the desktop and online wallets. The mobile wallets due to their mobility are categorized as a hybrid wallet. The best hot wallet is chosen based on the cryptocurrency network and browser compatibility.

A cold wallet is a device that is designed for the physical storage of cryptocurrency. Most of them come with a display screen so that the passphrase is not displayed on the internet-connected device. There are many types of cold wallets, and the main choice is between hardware wallet vs cold storage. 

Hot Wallet v/s Cold Wallet Differences

Ability to hold cryptocurrencies: 

Hot Wallet: One of the major advantages of using hot or digital wallets is that they can hold any cryptocurrencies. When a new digital currency is created and the initial coin offering, ICO is made, it cannot be used until there is a storage place available for it. So those that create these cryptocurrencies usually create a wallet for it. So newer cryptos will have at least one hot wallet with basic trading options at the least. Additionally, if the cryptocurrency is a popular one, there are many digital wallets created with advanced features and customization options, which can be used by the users. 

Cold Wallet: The major disadvantage of using a cold wallet is, when people want to hold lesser-known cryptos, they may not be supported. Most of the time, people will want to hold less popular coins as they are more affordable to buy.

Free Usage

Hot Wallet: The other major advantage of using a hot wallet is that they are free to use. There are many hot wallets that are free; you can register and use them without paying a penny. Even if you hold lesser-known coins, they will have at least one dedicated wallet offering, which can be used free of charge. 

Cold Wallet: These are devices that cost money. You will be spending a considerable amount of money on buying a device that is secure and multi-functional. 

Security

Hot Wallet: From a security standpoint, hot wallets are more prone to attack by hackers as they are connected to the internet. Additionally, hot wallet security is more dependent on third parties and hence is more vulnerable to attacks. 

Cold Wallet: These wallets have a reputation for being robust in terms of security. The codes are present in these little devices, and even if stolen cannot be cracked as it is secured with a passcode. In fact, the emphasis on security is so much that even if the device is plugged into the machine which has malware, the device is secure. 

Cryptos can be carried around

Hot Wallet: The cryptos cannot be carried around in the pocket as it is stored online.

Cold Wallet: You can have it in your pocket and carry it wherever you go. That means that transferring and carrying around is simple and discrete. 

Insurance

Hot Wallet: There are many hot wallet crypto and exchanges that give 100% insurance if you trust them with your digital coins. This is reassuring and a rare option that is available for only hot wallets. 

Cold Wallet: Once the device is purchased, there is no insurance if the passphrase is stolen by any chance. 

The debate on ‘hot wallets are much safer than cold wallets’ and vice-versa is not going to end soon, and there will be no clear answers. A user based on requirements will have to consider using the storage option. A great way to reduce risk is to store currencies both in the hot wallet and cold wallet. 

Frequently Asked Questions (FAQ)

  1. What is a hot wallet and cold wallet?

A hot wallet is online storage for your digital currency and was introduced along with the launch of Bitcoin. A cold wallet is a device that is designed for the physical storage of cryptocurrency.

  1. Which is the best cold wallet?

There are many cold wallets that are good such as Ledger Nano S, Trezor, etc.

  1. What is the safest crypto wallet?

The debates on ‘hot wallets are much safer than cold wallets’ and vice-versa is not going to end soon, and there will be no clear answers.

About CoinSwitch

CoinSwitch.co is the world’s largest cryptocurrency exchange aggregator which supports 300+ coins and over 45,000+ pairs. It provides an easier way of trading through global exchanges like Binance, KuCoin, IDEX, Huobi, Ethfinex, HitBTC and Cryptopia without creating an account on them. If you are interested in buying cryptos, do give it a try!