Hot wallets vs cold wallets: what’s the difference?

Hot wallets offer ease-of-use while cold wallets are reputed for their security. What else should I know to distinguish the two?
April 27, 2022 - Cynthia Chung

When buying crypto, finding a place to store it will ensure that your funds are secure and accessible. There are two main types of crypto wallets you can use- hot wallet and cold wallet. Their main difference is the amount of security they offer. Each crypto wallet can be used for a specific purpose, thus striking a balance between ease of use and security when using and trading cryptocurrency should be what we opt for. But first, read on to learn their differences. 

Definitions of hot wallet and cold wallet

Hot wallet refers to a crypto wallet that is connected to the internet, for example, the crypto you store on your an exchange account or a mobile application such as MetaMask.

The benefits of a hot wallet is that it allows you to access your funds faster, cash out your funds, make and accept transfers. You don’t have to transition between offline and online when making transactions. However, they are also more vulnerable to hackers, and technical issues. If your private keys are made known to a hacker, your crypto can easily extract funds from your hot wallet.

Cold wallet, on the other hand, refers to a crypto wallet that is not connected to the internet, and in the form of a physical device. They are immune to hacks as they generate their own private keys and it allows you to access your wallet that you store.

While many people trade crypto and shop with their hot wallet, doing the same with a cold wallet is inconvenient. You have to find a computer to plug in your cold wallet or connect via Bluetooth, then remove your funds to a hot wallet before you make your purchase.

It also comes with its risks, such as forgetting your private key or misplacing your wallet will make your stored crypto or digital assets irrecoverable.

Cold wallets also don’t accept as many cryptocurrencies like hot wallets do.

Which wallet should I go for?

As outlined above, hot and cold wallets have their own advantages and disadvantages. Each can be used for specific purposes, while hot wallets are becoming more secure and convenient, it’s safer to go with a reputable exchange who prioritize security. For those who hold large cryptocurrency funds may opt for a cold wallet.

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