If you are familiar with crypto, then chances are that you might have heard about hot and cold digital wallets. But what are they? Also, how are they different from each other? Well, to answer these two questions, let’s first get to know what a crypto wallet is. As the name suggests, it is a wallet that allows you to store, receive, and send cryptocurrencies. You can also consider it to be a digital bank account for your cryptocurrencies.
To be more specific, a crypto wallet is a software that stores the public and private keys that enables you to not only manage your cryptocurrency but also to interact with the blockchain networks. Now that you know what a crypto wallet is, let’s discuss its two types i.e. hot & cold digital wallets.
Hot Vs. Cold Digital Wallets: This is the Difference
Hot wallets are desktop, hybrid, or mobile wallets such as Armory, Edge, and BTCPay. They are extremely easy to use and are really simple to set up. They are meant for users who deal with cryptocurrencies every day. If you either send or trade crypto, you would want to store your digital currency in a hot wallet. They are connected with the internet, allowing you to take transaction steps easily. However, keep in mind that hot wallets will work seamlessly for you as long as you have a stable internet connection. So, if in case you don’t then consider getting it. My friend is an active trader of crypto who uses Spectrum internet for all his activities. He has never reported any issues with it.
Although using a hot wallet is simple but it does have a drawback: security! Storing a large sum in your hot wallet is not advisable as it can leave your funds to different security threats like cyber theft. Therefore, you should always consider storing a small sum in your hot wallets.
Cold Wallets are paper or hardware wallets such as SafePal, and Trezor. They are not connected with the internet and are known to be more secure when it comes to storing your cryptocurrencies. Hardware wallets are easy to use. Plus, with the added help of the manufacturer, using it becomes a piece of cake. They use a physical medium to store the private keys of the wallet which makes it unreachable to hackers and other threats. To store digital currency on your hardware wallet, you send the crypto from a hot wallet to the public address of your cold wallet. If in case you want to send the crypto from your hardware wallet then simply connect it to the internet and then use the private key to sign the transaction.
Paper wallets are similar to hardware wallets but instead of using a physical medium, it uses pieces of paper that includes a private key and a public wallet address. Therefore, it is advisable that you keep the paper somewhere safe where no one can have access to it. If you want to send the currency from a paper wallet then you would be required to scan the private keys so that the wallet is imported into a hot wallet.
What to Choose?
So now you know what hot & cold wallets are and how they are different from each other. But are you confused about the type of wallet you should go for? Don’t be! Look, choosing a wallet will always depend on your needs as a user. For instance, if you plan to invest and hold your cryptocurrencies, then it is advisable that you go for a cold wallet. This will help you keep your assets safe.
Conversely, if you are a crypto spender or trader then opt for a hot wallet as it is much easier to use. However, keep in mind that whichever option you choose, just make sure that the wallet you select is non-custodial. This means that only you will have the private keys to the wallet. It will allow you to have full control over your funds at all times.