Cryptocurrency wallets are an important resource that helps every user smoothen their crypto trading experience. Crypto wallets can either be hot wallets or cold wallets. A wallet is classified as hot or cold based on whether they are connected to the internet. Hot wallets are live and susceptible to change as they are connected to the internet. On the other hand, cold wallets are kept isolated from the rest of the market and are inaccessible because they are not connected to the internet. Despite this difference, both cold wallets and hot wallets have equal functions; they function as storage devices for cryptocurrencies and the private keys of various tokens.
A thorough knowledge of the differences between the two is essential to help you determine which type of wallet should be used to store the private keys of the cryptocurrency you hold.
What Is A Hot Wallet?
A hot wallet is a type of software that helps you store the private keys of your cryptocurrencies. Hot wallets are always connected to the internet and are always accessible to everyone. Therefore, they are temporary storage avenues for cryptocurrencies; you can store cryptocurrencies in between trades inside the hot wallets.
Hot wallets are not suitable for long-term storage of the private keys of your cryptocurrencies. This is because as hot wallets are connected to the internet, they are susceptible to malware or ransomware attacks, hacks, and other types of cyber security issues. So hot wallets should only be used for transactions, and not for storage. Backing up the assets, keeping the software up to date, and keeping your password safe and undetectable are several ways by which you can keep your hot wallets safe.
Coinbase wallet, MetaMask wallet, Trust wallet, and the Exodus wallet are the most common cryptocurrency hot wallets used for transactions.
What Is A Cold Wallet?
Cold wallets are specially designed digital devices used to store the private keys of cryptocurrencies for a longer time. They act as isolated pieces that are not connected through the internet. They are therefore safe storage spaces for cryptocurrencies. Most cold wallets look like smart cards or USB devices where the private keys of the cryptocurrencies are stored. As they are not connected to the internet, cold wallets are safe from cyber attacks, virus infections, ransomware or malware attacks, and hacking attempts.
Cold wallets can be in the form of paper wallets or hardware wallets. Paper wallets are simple pieces of paper on which you can write down the details about the private keys of your cryptocurrencies. Hardware wallets are hardware devices like USB drives or smart cards in which you can store the private keys of your cryptocurrencies. Most cold storage devices are non-custodial storage devices. That means the private keys are not stored under the custody of a particular person.
As cold storage devices are removed from public view due to their dissociation from the internet, they are the safest devices to store the private keys of your cryptocurrency holdings.
Major Differences Between Hot Wallets And Cold Wallets
Hot wallets score high in terms of accessibility and convenience. As hot wallets are always connected to the internet, they can be accessed within seconds. On the other hand, cold wallets are not suitable for immediate, emergency transactions.
Hot wallets are not safe storage spots because they are vulnerable to cyber-attacks and threats. Cold wallets ensure the safety of the cryptocurrency’s private keys because they are not connected to the internet and are inaccessible. Compared to hot wallets, cold wallets are more secure.
Hot wallets are more cost-efficient because they are available online and you do not require any special devices such as USB storage devices. Most hot wallets are free of transaction charges. On the other hand, cold wallets are comparatively more expensive. Their cost may vary based on the material they are made of and the technology used by them.
Learn more: How To Recover Lost Cryptocurrency Wallets?
The Bottom Line
Cryptocurrency hot wallets and cold wallets serve different purposes and are important in their aspects. It is important to know their characteristics and differences to select the one that suits your needs and make good use of the facilities that they provide.
