Cryptocurrency wallet is a program or device for storing private and public keys of a cryptocurrency user. It guarantees that no one else will get access to funds, but at the same time requires careful attention, because if you lose your data, then the owner will not be able to use his capital.
A crypto wallet should be convenient and secure. Today, the Btcnewsweb.com editors talk about hot and cold wallets – what this means, how they differ from each other and how to make the right choice.
Difference between cold and hot cryptocurrency wallet
Hot wallet is an internet-connected cryptocurrency wallet. As a rule, it is easier to start, configure and use. However, these wallets are more susceptible to technical vulnerabilities, hacker attacks and regulation.
Cold storage – storage that works without an Internet connection. It is several times safer, but it has a limited choice of supported currencies, and in addition, requires the purchase of an expensive device.
An investor may have different reasons for using a particular type of storage. Most often, both options are used at once.
Features and Benefits of Hot Wallet
A hot wallet is ideal for fast and frequent transactions, while a cold wallet is ideal for storing long-term investments that are not planned to be touched. At the same time, only a small percentage of the total capital is kept in the hot wallet – “for small expenses”. If they are lost, there will be no big trouble.
Some investors prefer to keep cryptocurrencies and tokens on accounts of popular crypto exchanges such as Binance or Exmo. These companies act as hot wallet service providers. They store funds inside their infrastructure, and if an attacker gains access to the server, they can get to client accounts.
When choosing a hot wallet, pay attention to the following factors:
✅ What cryptocurrencies does it support – only bitcoin, or also altcoins, rare tokens.
✅ Security – two-factor authentication is supported, the site address starts with HTTPS, and payments are made using the HD system (hierarchically determined) – a new address is used each time to receive a payment.
✅ Multisignature function if you want to share the software with other owners.
✅ A simple and logical interface that allows you to quickly start making transactions.
✅ Reputation in the crypto community, transparency of the development team, open source.
In general, the hot storage option is suitable for those who value ease and quickness of learning, do not worry too much about privacy and do not plan to store large amounts of cryptocurrency.
Examples of hot wallets
The Blockchain wallet supports Bitcoin (BTC), Ethereumr (ETH), Bitcoin Cash (BCH), Stellar (XLM), USD Digital (USD-D) and a number of other popular coins. Provides the ability to create backup copies of keys. In addition to the storage itself, there are additional services, such as the exchange of one cryptocurrency for another using the built-in exchange. You can send money from one wallet to another with a fairly low commission. The resource is available in 25 languages. You can use it from the browser, as well as through mobile applications for iOS and Android.
Supports over 90 popular and rare cryptocurrencies. One app includes wallet, exchange, portfolio management tool. Registration is not required, just install the application on a device running Android, iOS, MacOS X, Windows, Linux, and there is also an extension for Google Chrome. The news section will help you keep track of all the latest events from the world of cryptocurrencies in a timely manner. Jaxx wallet has built-in third-party apps like Changelly or ShapeShift to buy or sell assets instantly.
Pros and cons of a hot wallet
✅ Most of them are free.
✅ Instant access to cryptocurrency – just launch the application.
✅ Maximum simplicity and user friendliness.
✅ A wide range of additional functions.
✅ Support for a large number of coins and tokens.
❌ Security is questionable, as hot wallets, by definition, are always connected to the internet when launched.
Features and benefits of a cold wallet
Any crypto assets that you don’t need instant access to are best stored in a cold wallet offline. Security is a key factor in the entire crypto industry. There are options like a hardware wallet or a paper wallet.
A hardware wallet is an external device, similar to a USB flash drive, that stores private keys. Hackers cannot remotely access it, because the owner must confirm it to complete any transaction. If the device is lost, there is still no danger, since the access is protected by a PIN code.
A paper wallet is a printout of the private key and public address on a piece of paper. The method is safe enough if you are sure that no one will find the paper and it will not burn or get wet.
Cold storage selection factors:
✅ Safety is top priority. You should focus on trusted service providers who have a good reputation.
✅ Ease of use. It’s a little more difficult anyway than using a hot wallet, but still not desirable for learning to take too long or inconvenient to use.
✅ Access. You need to decide what is more important to you – 100% safety or convenience. Because the easier it is for you to access your funds, the theoretically easier it is for an attacker to do this.
And finally, since we are talking about a physical device, then size, weight and appearance will play a certain role in the choice. It all depends on personal preference.
Examples of cold wallets
Over 1,500 cryptoassets are supported. High security standards, all Ledger products are equipped with a unique chip and proprietary operating system. You can manage your assets through the Ledger Live app or an external wallet. The wallet is certified by the French Agency for Information Systems Security (ANSSI). Authentication ensures that the Ledger device has not been tampered with or compromised by a third party.
Supports over 1000 coins. It has a very high security – it always checks the firmware when booting, and the firmware starts only if it is correctly signed by SatoshiLabs. Supports passwords like BIP39, which are never stored on the device. The bootloader is write protected. The Trezor body is ultrasonically welded. An easy-to-use interface allows you to monitor funds, manage balances and conduct transactions.
A paper wallet can be created at bitaddress.org or one of its analogues. It is enough to move the mouse across the screen or enter a few random characters in the text field for the system to generate private and public keys. They can be immediately printed and used in the future to enter one of the crypto wallets.
Pros and cons of a cold wallet
✅ The safest option for storing large amounts or long-term investments.
❌ Not very suitable for frequent transactions.
❌ The hardware devices are quite expensive.
Questions and answers
How is a cold wallet different from a hot one?
The former keeps funds offline, the latter uses an internet connection.
Are exchanges hot wallets?
Yes, they do, and you can apply all the same advantages and disadvantages to them as to the rest of hot wallets.
Which option is safer?
Cold storage is safer, and the likelihood that an attacker gains access to savings is reduced to zero.
What are the benefits of hot storage?
It is much more convenient and simpler, especially if you make transactions on a daily basis.
Is there a big risk of losing money by storing it on the exchange?
If you choose a proven site with a good reputation and a high level of security measures, then the risk is small. But still he is. It is difficult to find exchanges that have never been subjected to hacker attacks.
Which wallet is better to use?
In general, this depends on your priorities, but one general advice can be given – to keep small amounts in hot wallets for everyday transactions, and keep the main capital in cold storage, where it will be completely safe.