Before we begin, let us make it clear to you. Crypto wallets are not your traditional physical world wallets to store cash.
A crypto wallet is an application or software that does not hold your cryptocurrency but gives your private keys or password to access it. It is important to note that you cannot physically put cryptocurrency anywhere. Your crypto holdings exist on the blockchain database. So, wallets store private keys and addresses to allow you to interact with the blockchain to access your cryptocurrencies. When you enter your key, your wallet finds all the data blocks associated with the key and presents it on its interface.
Your wallet proves your ownership of these cryptocurrencies, so if you lose your keys, you lose access to your cryptocurrency. Besides, it shows your current balance and enables you to send and receive cryptocurrencies from your wallet to others. In short, with a crypto wallet, you manage your cryptocurrencies.
Let’s explore the difference between hot and cold crypto wallets to enable you to make the right choice.
Hot vs Cold Crypto Wallets | The Pros & Cons
A hot wallet is online on your computer or mobile phone connected to the internet. On the other hand, cold wallets store keys in hardware devices (like USB) or even paper. So, cold wallets keep your data offline.
Hot Wallets Winning Points | Cold Wallets Cons
Hot wallets are generally known as software wallets which can be a mobile or desktop app or a browser extension. Hot wallets are online, so they are convenient, especially for quick transactions. Cold wallets (hardware wallets or paper wallets) store private keys and addresses on external devices or paper offline.
So, to perform any transaction, you must find the device, plug in your computer, then transfer your currency from your cold wallet to others address. So, hot wallets are convenient, while hot wallets are not.
Another point that adds to the pro list of hot wallets is that it is faster to perform any quick transaction on hot wallets. You can access your wallet on your computer. Besides, there are even compatible with iOS and Android devices. So, to make a quick trade, it is easier and faster to use hot wallets because they are online. On the other hand, cold wallets are a little cumbersome.
Hot wallets are free, while for cold wallets — you may need to buy an external device (hardware wallet) that can cost between $50 to $250.
Cold Wallets Winning Points | Hot Wallets Cons
The main con for hot wallets is they are not safe. Since hot wallets are online, they are vulnerable to hacking or other security risks. In fact, hackers are always on the hunt to steal your keys to get access to your cryptocurrency.
Cold wallets are more secure than hot wallets. So, they are safe from cybercriminals as they keep your private keys offline on your device and not on the internet like hot wallets. The only way to steal from cold wallets is to get physical possession of the hardware. Besides, cold wallets are best if you want to store currency assets for longer than hot wallets due to security.
Additionally, this security advantage makes cold wallets a perfect choice to store more cryptocurrency assets than hot wallets, which should be dealt with like a checking account only.
Takeaway | Use Combinations of Both
If you look at security and want to store currency for longer or in large amounts, then opt for cold wallets. For convenience, users’ friendliness, and efficiency purposes — hot wallet wins.
So, the ideal way for you to work is to combine both kinds of wallets to enjoy the best of both worlds. For quick transactions, keep some crypto assets in hot wallets. On the other hand, store private keys for larger assets offline on cold wallets to protect them from cybercriminals.
So, work out the best situation for you. Remember, nothing is safe on the internet. So, be mindful and extra cautious.
Hopefully, with our guide, you will be able to work out things best for your portfolio.