What’s the best way to store cryptocurrency? If you ask this question on the internet, you’ll likely get dozens of different answers that contradict each other. It can be confusing, especially since there are many ways to store crypto. Here’s an overview of hot wallet vs cold wallet storage to help you figure out what’s suitable for your crypto needs.
Getting Started: What is a Crypto Wallet?
After purchasing cryptocurrency, deciding where to store it is an important step. Unlike physical currency, cryptocurrencies run on a blockchain system and therefore require digital storage systems called crypto wallets. It’s similar to a cash wallet in that it allows people to hold and transfer funds – but there are differences too. A crypto wallet consists of public and private keys, enabling owners to receive and share their cryptocurrency without exposing their identity or location.
There are two storage options for digital cryptocurrency wallets; hot and cold storage. Hot storage is an app or platform connected to the internet, while cold storage is stored offline in a physical device such as a thumb drive. Both systems offer individuals access to their online funds but provide different experiences with usability and security levels.
Which option is best for you depends on your personal preference. A possible solution would be combining the two options; however, it will depend on what you want to achieve with cryptocurrencies in the short and long term.
Benefits of Crypto Wallets
A specialized crypto wallet is a secure way to send, receive, and spend cryptocurrencies. This option is best for long-term investors looking to diversify their portfolios without putting all their eggs in one basket. Cryptocurrency exchanges have been hacked before, so it’s always intelligent – especially if you’re keeping large amounts of money there – to keep your currency off the deal at all times.
Crypto wallets are getting better every day. Modern versions allow for the storage of a large variety of coins at one time. Not all currencies appear on all major exchanges, but with a good crypto wallet, you can easily manage your entire investment portfolio.
Since the cryptography behind bitcoin is based on the SHA-256 algorithm cracking this is practically impossible. There are more possible private keys that would have to be tested (2256) than there are atoms in the universe.
Different Types of Crypto Wallets
Hot and cold wallets refer to two possible storage solutions for cryptocurrency. The names imply whether the wallet is connected to the internet or not.
Hot wallets are digital crypto wallets that need constant access to the web, whereas cold wallets are physical devices that store cryptocurrency offline (not linked) from electronic networks. By being disconnected from computer networks, these types of hardware can protect themselves against cyberattacks.
Although you will find more types of wallets around you, they are usually hybrids of hot and cold variations.
What is a Hot Wallet?
Hot wallets connect to the internet and enable owners of such wallets to buy cryptocurrencies or Non-Fungible Tokens (NFTs) from anywhere in the world.
It’s easy to see why Hot cryptocurrency wallets are so appealing. For one thing, they’re free and can be found on the internet. They’re also easy to use – much more straightforward than currency being transferred from cold storage (stored securely offline), which would take too long for someone who does a lot of trading throughout the day.
The downside to hot wallets is that they are less secure than cold wallets. Software errors can result in hacking, so it’s understandable why some cryptocurrency holders would stay away from them.
Types of Hot Wallets
There are many types of hot wallets, most of which are free to download. Some only work with certain mobile web apps, so be careful if you want to avoid using the wrong wallet! Additionally, some exchanges require sending or receiving coins from specific wallet addresses – so check before moving.
Briefly, Hot wallets vary due to their attributes. There are three types: Web-based wallets, Mobile wallets, and Desktop Wallets.
1. Web Wallets
As the name suggests, these are web-based online wallets that need you to open a URL to access them. They all have an accounting system that requires users to create a username and password.
Pros:
⦁ They are easy to access and do not require installation of any third-party software or purchase of tokens.
⦁ They can offer features such as advanced trading features that are unavailable on decentralized exchanges.
Cons:
⦁ Don’t give you control of your private keys or secret recovery phrase, meaning that you can’t access your funds without relying on the website owners.
⦁ They’re also vulnerable because they are accessed with a web browser which is easily hacked and stored centrally. This makes them an easy target for hackers who want free money.
⦁ The exchanges within these wallets aren’t always accessible in these wallets – though this varies between each wallet provider, so check first before purchasing!
Examples of Web Wallets
- Blockchain.com
- MyEtherWallet
- MyCryptoWallet
- MetaMask
2. Mobile Wallets
One of the newest trends in digital payment is mobile wallets. A mobile wallet allows you to store all your cryptocurrency inside an app on your smartphone, providing a streamlined experience for managing costs and transfers.
Pros:
⦁ Can be used on the go: most apps allow you to make quick transactions at places where cryptocurrencies are accepted.
⦁ You retain complete control over your funds because most apps offer full access to private keys and secret recovery phrases; no one else can spend what isn’t yours!
Cons:
⦁ Can result in internet-based risks.
⦁ Someone might get a hold of your phone if you don’t put a password for it and use your mobile wallet.
Examples of Mobile Wallets
- Exodus
- Coinomi
- Binance
- Mycelium
- Zengo
Desktop Wallets
As you may have already guessed, desktop wallets are built to be downloaded onto desktop computers and laptops. Due to the powerful features, they can offer on computer desktops such as Windows, macOS, or Linux – these types of wallets are the most popular. If you have an Exodus wallet installed on your laptop/desktop device, it would also count for a desktop-based wallet (as well as online).
Pros:
⦁ Many desktop wallets are compatible with many different cryptocurrencies.
⦁ Many also include extra features like built-in exchanges, portfolio charts, etc.
Cons:
⦁ Like other hot wallets, they are susceptible to Internet dangers—but many users consider them safer than web wallets depending on the user’s security practices.
Examples of Desktop Wallets
- Jaxx
- Electrum
- Atomic
Popular Hot Wallets To Try
ZenGo
ZenGo offers a highly secure mobile wallet which operates in several countries worldwide. One unique feature of Zeno’s wallet is its integrated biometric security system.
Aside from this, its operation resembles most other wallets. It can store large amounts of cryptocurrencies with an easy-to-use user interface connecting to different blockchain networks.
Mycelium
There are many different kinds of wallets to choose from, but Mycelium seems very popular among Bitcoin enthusiasts. It has many features that could intimidate newer users and those just getting into cryptocurrencies. If you’re an expert in this field and are looking for something new or different to try, Mycelium is the right choice!
Coinbase Wallet
Coinbase Wallet is unique because it functions as a standalone application and doesn’t require users to sign up with Coinbase’s cryptocurrency exchange. Originally built to support Ethereum and its associated tokens, it has since expanded to include other cryptocurrencies, such as Bitcoin.
Check out Coinbase Wallet here!
Electrum
Electrum is also a popular cryptocurrency wallet that stands out from the rest because it provides an excellent service that suits most of its users.
What is a Cold Wallet?
Many security-conscious cryptocurrency users favor cold wallets. These wallets do not have any internet connection – they’re offline and unplugged from the web. Any device designed to store cryptocurrencies could be used as a crypto wallet. Some of these devices are variations of USBs – like flash drives.
Cold storage wallets are both very secure and quite portable. Cold wallets cannot be accessed without the proper security credentials, which makes them nearly impenetrable. These devices also tend to come in various sizes; they can fit just about anywhere – even in one’s pocket! Crypto holders will find these items invaluable because they allow them to take their assets wherever they go.
Types of Cold Wallets
Cold storage wallet options are plentiful, including a variety of paper wallets, physical bitcoins and some offline computers which hold cryptocurrency. All reputable exchanges offer these cold storage options and hardware devices for safekeeping cryptocurrencies.
Paper Wallets
A paper wallet is a piece of paper containing a person’s private key or QR code that facilitates cryptocurrency transactions. These can’t be accessed over the internet, so some people believe they are more secure than any other form of storage. However, this also means there may be problems when using them if they become damaged or lost.
Paper wallets can succumb to water and fire damage. You must also protect them from being stolen or lost. Once you receive the paper wallet, do not show anyone else your security information.
Pros:
⦁ They are less susceptible to internet threats and cannot be hacked by malware.
Cons:
⦁ It takes more effort to transfer funds from one account to another since you cannot do so instantly via the internet, which could prove inconvenient for day-to-day transactions.
⦁ Though generally invulnerable to hackers, cold wallets may still suffer damage due to wear or tear or natural disasters such as fires – but this can be avoided mainly with higher-quality materials.
Hardware Wallets
A hardware wallet is a cryptocurrency storage device that securely holds its users’ private keys. These devices have many benefits, making them worth investing in for long-term use. Firstly, your cryptos will always be protected regardless of whether or not you’re on a secure computer. Secondly, they offer additional protection from malicious software and hacking attempts which could otherwise result in data being compromised if you were using only a regular software program for storing coins.
Hardware wallets can connect to multiple blockchain networks, which makes them highly convenient. They are plug-in devices that allow you to securely access your crypto assets from any location without creating new accounts.
Hardware wallets provide users direct access to various decentralized applications (DApps). You can even trade right on the device! Most importantly, using a hardware wallet for all of your cryptocurrency transactions is considered by many experts as the safest way to do so.
Pros:
⦁ The private key never leaves the device, making it difficult for thieves and malware to access.
⦁ Transactions are approved on the hardware wallet itself, so there’s no risk that someone could carry out transactions without your knowledge.
Cons:
⦁ It can be expensive for those who don’t meet a specific price point ($120+), which makes this product inaccessible to many people.
Examples of Hardware Wallets
- Trezor
- Model T
- Ledger Nano S
- KeepKey
Popular Cold Wallets To Try
Due to increasing consumer demand, several new hardware crypto wallets have been released over the past few years. They all offer something different, but some come with disadvantages as well. Here are a few popular models available right now:
Ledger Nano S & X
Ledger is a well-known French company that manufactures the Nano S and X models. These hardware wallets resemble a thumb drive but are encased in steel to provide maximum security for assets like Bitcoin. Any computer or mobile device that supports Bluetooth or USB can connect with the machine; at the moment, there are about 1800 different cryptocurrencies available for storage on Ledger devices.
Trezor Model One
Trezor One is one of the oldest and best-known crypto hardware wallets available. Made by Satoshi Labs – a leading provider in this space – it supports over 1000 different digital currencies. But, even so-called newer devices are trying to improve on what works for some people, which means that there will always be changes from new models as old ones keep coming out too.
Check out Trezor Model One Here!
NGRAVE
Instead of using old-style Bluetooth or USB ports, GRAVE uses a one-way QR code to communicate data to connected devices. It provides data for these devices while staying in contact with the internet. This means that users will never have to worry about installing software they cannot trust again.
Ballet Wallet
The Ballet Wallet is a regular credit card with a new twist. It includes an authentication code, which prevents hacking and theft. Users can unlock their money by removing the sticker on the back of the card to reveal their unique QR code – it can also be accessed via mobile software.
Hot Wallet Vs Cold Wallet
Hot wallets are more user-friendly, connecting to cryptocurrency exchanges. This makes transferring your holdings easier than with a cold wallet. They’re generally safe for day traders and those that don’t work with an astronomical amount of crypto (unless you mistakenly send it to the wrong address).
Cold wallets have no internet connection and – as such – are much more secure; they’re easy to carry around, too. And because they usually feature a wide array of cryptocurrencies, it’s easy to manage your portfolio.
To provide a more detailed and descriptive account, let’s differentiate between the two on certain factors.
Factors Hot Wallet Cold Wallet
- Price Usually free and sometimes offer interest on crypto deposits. Can cost between $100 to $300 as an external device is purchased.
- Key Usability Hot wallets provide easy access and usage when it comes to trading cryptocurrency. Cold wallets are better suited for long-term storage of cryptocurrencies.
- Crypto Amount A hot wallet can range between one to tens of thousands of cryptos. A Cold wallet can have anything from 1,000 – 100,000 pieces inside it.
- Security Decent. Some are at risk for being hacked, but many include encryption software to combat hacking attempts. Fantastic! There is no way to hack these and they don’t require a huge amount of effort to maintain their durability. Protection.
- Loss Protection Great! Smartphones can be backed up while many desktops offer recovery software if you need it too! Poor! These will only recover passwords–not lost hardware/devices.
- Ease of Transfer Excellent! Sending transactions takes mere minutes because all you need is the phone number associated with your app. Decent. You’ll first need a QR code or USB cable depending on which type of wallet you use, then you’ll have to enter the requested info for the transaction (URLs in most cases).
- Convenience Great! Hot wallets are connected to the internet, which makes them easy to use for everyday transactions. Average. Cold wallets require you to connect them to your web-based account before you can use them and transfer money.
Which Wallet Should You Choose?
When selecting between a cold or hot crypto wallet, the individual wants to find a balance. A good idea would be to include one of each type in their everyday life. For example, they might use an exchange account hot wallet if they are making trades often and want quick access; but also hold onto a mobile version that doesn’t require them to log into anything because it takes so much time. When deciding which is best for them, it’s essential to consider what they need most: speed or security.
Another popular trend is using a second phone that functions only as a mobile crypto cold wallet. When making transactions, you power up the secondary phone, which connects to your primary phone through Bluetooth or wifi and transfers coins from your hot wallet to complete the purchase. Once the transaction has been completed, connectivity between devices is turned off, and the device goes offline until needed.
Many people find this more accessible than a hardware wallet, and it offers security and peace of mind knowing your cryptocurrency is safe and secure. This method is safer than most mobile wallets but less so than a cold storage or hardware wallet. With this approach, you will typically hold an intermediate amount of cryptocurrency.
Conclusion
Storing cryptocurrencies, like any valuable assets, demands making a personal decision about how to keep them secure without giving up functionality. Over time, there has been some convergence—hot wallets are becoming more secure and cold wallets are growing more convenient.
For those who choose to maintain custody of their coins, the trend is towards storing coins in hardware cold wallets. Those using exchanges as their sole means for storage should be sure that they only use exchanges with a proven track record on security and follow their security recommendations closely.
FAQs
Q1: Are hot wallets safe?
Ans: Some hot wallets are relatively safe, having millions of users. Hot wallets are a safer alternative to keeping cryptocurrency funds on an exchange. Yet still, there are other alternatives for safety – such as cold wallets and hardware devices that support cryptocurrency funds offline.
Q2: Are cold wallets better than hot wallets?
Ans: Regarding security, cold wallets are superior to hot wallets. A key advantage of using a cold wallet is that there’s no risk of having your purse stolen from an internet connection.
Q3: Are cold wallets safe?
Ans: Cold wallets are pretty safe because they’re offline, so it’s much harder for them to be hacked. Privacy is also better protected, making this the perfect place for all your cryptocurrency holdings.
Q4: Which hot wallet should I use?
Ans: Experts recommend newbies start with a hot wallet. A hot wallet is easy to use and can be accessed through the popular exchange site, Coinbase. This app, called Coinbase Wallet, is one of the best beginner’s guides – it supports most cryptocurrencies while also being easy to navigate around.