You can carry around a ₹500 note in your shirt pocket. If you have a large amount of cash, you can deposit it in a bank for absolute safety. However, you need a different kind of storage for cryptos and NFTs, as they exist only digitally. You can store these digital assets in crypto wallets—the equivalent of a traditional bank. And crypto wallets come in all shapes and sizes: the most commonly used ones are hot and cold wallets. Hot wallet vs. cold wallet, which is the better option? Let’s dig in.
What is a crypto hot wallet?
Hot wallets or software wallets are desktop or mobile applications that can be downloaded and installed. Some popular hot wallets are WalletConnect, MetaMask, and Trust Wallet. You can store your crypto in a hot wallet available via the internet. Since the wallet is always linked to the internet, software wallets are often handier and easier to access than hardware wallets. Whenever you want to conduct a transaction, your wallet will facilitate dealings between the owner and the buyer. In simple terms, a program will store all your private keys.
Traders can employ this wallet type to ensure the safe storage of their holdings. Further, they offer the convenience of easy transactions across a crypto-economic system.
What is a crypto cold wallet?
Just as a hot wallet ensures the storage of all the private keys to your crypto, a cold wallet or hardware wallet serves the same purpose. However, unlike your hot crypto wallet that is present online, a hard crypto wallet is offline and is available on a separate physical device like a USB stick. This is the singular feature that distinguishes hot wallets vs. cold wallets.
Two popular cold wallets are Trezor and Ledger.
With the online accessibility of crypto wallets, there are chances of getting hacked. Hence, cold crypto wallets are offline to provide your digital assets with foolproof security. Your cold wallet protects your keys by employing a device identical to a flash drive which is not accessible online. Crypto assets saved in hardware wallets are often said to be in “cold storage.”
Moreover, cold wallets offer you two options, hardware and paper wallets. A hardware wallet offers the best security as its design makes it difficult to steal keys even after plugging them in. On the other hand, paper wallets are printed pieces of paper that contain keys and QR codes that aid your crypto transactions.
Crypto hot wallet vs. crypto cold wallet
Having understood the primary differences between hot and cold crypto wallets, let us discuss the finer points between hot wallet vs. cold wallet.
A primary distinguishing feature that separates cold and hot wallets is their connectivity. Hot wallets are always available online and connected to a crypto network. This property makes transactions user-friendly as it offers a program for storing all your keys. The transfer takes place online.
A cold wallet or cold storage is not available via the internet. It provides your private keys with an offline storage environment. The private keys are saved in a physical plug-in device or on paper with the address to a public wallet. The user must transfer coins from offline to the online mode or vice versa.
The design of your crypto wallet decides its security. Understandably, a hot wallet’s connectivity differs from a cold wallet’s. Since it is possible to access a hot wallet online, it is susceptible to cyber-attacks and theft.
On the other hand, a cold wallet is known for its security as it is impossible to obtain via an online medium. Thus, your keys are free from harm, going missing, or getting hacked.
Hot wallets may be free of charge, or traders may have to pay interest on their stored digital assets. Or you can use them at a lower price. It is because crypto traders can keep their crypto on the exchange they may use.
Cold wallets, on the other hand, are costly. The reason is the need to buy a physical device for storing your private keys to access digital cash. These devices may cost between $50–$250.
Crypto wallets also differ in terms of their acceptance level. In this hot wallet vs. cold wallet difference, a hot wallet wins hands down. Consequently, all crypto support storage in hot wallets, whereas only recognized crypto support cold storage.
When you store your assets on an exchange, chances are that you won’t be able to access your digital assets. However, your assets will remain safe in cold storage after an exchange closes.
On the other hand, hot wallets offer the option to back up and restore lost assets. The same is not the case with cold storage which may provide choices to recover the password but not if you lose the device.
If you want to trade, you must have easy access to the assets. A hot wallet offers this possibility for instant coin exchange. Conversely, cold wallets may not be a good option if you are looking for faster trading.
The storage of your crypto is essential for safekeeping private keys. There are crypto wallets that offer two storage solutions. Depending on your requirements, you can choose between a cold wallet and a hot wallet. Ideally, you can use a cold wallet to store cryptocurrency for an extended period and a hot wallet to hold crypto for a short period.
What are the disadvantages of a cold wallet?
Cold wallets have limited accessibility, require careful storage, and can be vulnerable to physical damage or loss.
Is Ledger a hot wallet?
No, Ledger is a hardware wallet, which is a type of cold wallet that stores cryptocurrency offline.
Are online wallets also known as hot wallets?
Yes, online wallets are commonly referred to as hot wallets as they are connected to the internet and accessible online.
What is a hot and cold wallet in crypto?
You require a space to store the crypto you have bought. For this, you have hot and cold wallets. A hot wallet for storing your digital assets offers online connectivity. Alternatively, a cold wallet is a storage option for keeping your assets in hardware without internet connectivity.
Are cold wallets better?
The answer will depend on your storage needs. Cold wallets may work best if you are looking for a storage solution for a longer period. However, if you want easy accessibility with storage for a short time, hot wallets make a better option. DYOR before you decide.
Is it safe to keep crypto in a hot wallet?
In today’s age, almost everything is hackable. However, cold wallets are much more secure than hot wallets. This is because cold wallets are not internet-connected like hot wallets. Unlike cold wallets, hot wallets are susceptible to theft and data loss. But with advances in technology, hot wallets also offer high-level security features.
Should I keep my crypto in a cold wallet?
Cold wallets are an excellent solution if you are a long-term crypto holder. However, if you are searching for a solution that allows easy access to holding crypto for the short term, you must consider hot wallets.