Hot Wallet vs Cold Wallets

hot vs cold wallet

The majority of crypto exchanges have native digital wallets, which offer the most convenient method of storing cryptocurrency. However, it means that your private keys and data are in the hands of the exchange company, which isn’t the most secure. If you’re looking to up your digital asset storing game, you will need to know whether you must learn the difference between hot and cold storage. Continue reading to find out more.

What is a Hot Wallet?

Hot wallets refer to digital wallets that are connected to the internet and typically involve the use of secure software. Unfortunately, no matter how much security a hot wallet provider boasts, your assets will always be vulnerable because they are connected to the internet and can be attacked by hackers. Fortunately, there are other steps you can take to mitigate the risks of being connected to the internet.

Although hot wallets are connected to the internet, they come with high levels of security, which works in the user’s favor. The greatest appeal of hot wallets over cold is how user-friendly they are, which means they are perfect for beginners. Even though hot wallets aren’t the most secure option, it’s much better than storing your coins on the exchange – if their servers are hacked, you can say goodbye to your crypto assets.

What is a Cold Wallet?

Cold wallets are another option for storing cryptocurrency, but they come with zero internet connectivity, which makes them more secure. Typically, a crypto cold storage wallet comes as hardware that you will need to link up to a computer before withdrawing your assets. If you plan on investing in crypto and keeping hold of it for long periods, cold storage is easily the best option.

Being disconnected from the internet means that your assets can’t easily be hacked, which makes them more secure. However, you are responsible for keeping your personal key safe, which is a string of numbers and letters. If you lose your private key, you will lose access to your entire crypto wallet. If you’re using crypto hardware, you also need to be wary of physical thieves; there is no backup for your cold digital wallet.

Do You Need a Wallet?

If you’re using a mainstream exchange and only wish to invest a small amount in crypto, your assets should be safe in the native wallet, which you should get free when you sign up. However, if you’re going to be shifting crypto in large quantities, and often, you will need to open a dedicated wallet, whether it be hot or cold.

Cold wallets are stored offline, which makes them more secure simply by nature. However, they’re still vulnerable to being stolen, and there’s the risk of losing private keys – there’s no way of recovering your assets if this happens. Hot wallets are more user-friendly and tend to include high-end security and support, which will suit a cryptocurrency beginner.

Whether you opt for hot or cold storage, opening a separate digital wallet will offer much more security than letting your assets sit in a crypto exchange.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.