Many crypto enthusiasts think that crypto wallets are like men from Katy Perry's song: simultaneously hot and cold. But the reality is quite different. They are completely different and never intersect with each other. Almost never 😁
It sounds confusing, I know. That’s why I’m here to show you the true differences between hot and cold wallets, and how the most suitable option. I also show you how a non-custodial wallet becomes crypto world Hanna Montana aka “Best of both worlds”, gathering the best features from both types.
What is a Wallet in Cryptocurrency?
A crypto wallet acts similarly to a multi-currency PayPal account: it’s a service that stores your digital possessions, sometimes even in multiple cryptocurrencies.
Hot crypto wallets store both public and private keys in their cloud, making the user interface even closer to PayPal. In this case, all you need to remember is your login and password.
Cold wallet storage is a physical device. You need to store your private keys in the third-party app. Or write it on the paper and take it with you. Remember that you are fully responsible for your private keys. If you lose them, you’ll lose the wallet access.
Non-custodial wallets are like Hannah Montana of the crypto world. They are apps like hot wallets, and you are only responsible for storing your keys like in cold wallets.
Public keys are shared among the network, similar for each user. It’s like a marker that shows “Hey, I’m using Ethereum/Bitcoin/Tron”. A private key is a specific number that encrypts only your wallet.
Don’t share private keys with anyone. If you share it online or store it in a Google Doc with general access, there is a high chance that hackers find it and steal all your money from the wallet. That’s why I share with you cyber security tips almost in every article: it’s a crucial aspect of crypto wallet safety!
What is a Hot Wallet?
Hot (app) wallets are constantly connected to the cloud. You can access them from any suitable device. If your wallet provider tells you that it has a web application, you can access the wallet even from your smart fridge. Just make sure it has a browser and stable internet connection.
Simply authorize the service, and enter the wallet to which you want to send your money. You don’t need to type your private keys or connect to an additional device.
But this simplicity has a major drawback: hot wallets in crypto are one of the most common victims of hacking attacks. Thus, I recommend you look for options with advanced security measures.
Some crypto hot wallets offer security features, such as multisig support. Other wallets may offer great trading features, such as advanced charting and analysis tools. I recommend you test at least 2-3 wallets from different providers to find which suits you most.
Hot wallets in crypto are useful for those who want quick access to their tokens from multiple devices. It’s a great starter option for people, who want to try out all DeFi abilities: store, exchange, lend, borrow, and stake money.
What is a Cold Wallet?
It’s mostly a separate device that you need to connect to your computer. However, it doesn’t store your private keys. You are free to save it anywhere you want. It can be a sophisticated password manager, an iPhone’s Notes, or a favorite sketchbook. It depends on your cyber security preferences.
A more recent and less common cold wallet type is non-custodial. It’s the app that stores public keys. So you don’t need to carry additional physical devices with you. But, as with any cold wallet, you need to store keys somewhere else.
The main drawback of the classic cold crypto wallet is the less convenience. You must take a physical device and connect it to a PC or tablet to launch the wallet. But in some cases, it can become an advantage. Due to the connection complexity, you save yourself from impulse purchases: it may take up to 10 minutes until you log in. This time will be enough to cool the shopaholic’s ardor.
I recommend you save the keys in multiple places. If you can launch a seed word, use this opportunity. A seed word is a short phrase for your cold storage crypto wallet to set up as an additional password. It’s like Google’s “Tell us the maiden name of your mother” last attempt measure to restore the account.
Use them if you are looking for a convenient storage option in the long term. Hardware storage is less vulnerable to hacking attacks.
Hot Wallet vs Cold Wallet: The Key Differences
Hot crypto wallets are mostly online. They are more tender to online criminal attacks. Cold options are offline ones. It increases their security but lowers accessibility. At the same time, hot options are easier to use. Non-custodial options are easy to access like hot options, providing extra measures like cold storage wallets.
If you need an accessible option, check out for hot and non-custodial storage. If you are deeply concerned about security, picking a cold or non-custodial wallet suits you better.
Hot wallets in crypto typically offer more features, including built-in exchanges, bridges, etc. Cold options are less social but far more secure.
Security
Hot crypto wallets, unfortunately, are a far more vulnerable option: it takes seconds to open the app. Once criminals hack your account or get keys, they can steal money. Those storages are also highly sensitive to supply-chain schemes, DoS attacks, and exit scams.
Cold wallet storage is more robust because it’s mostly offline. But if you have problems with attention, you better save those storages in a physical safe. Those devices are small in size, so they are easy to get lost. If you have your wallet but forget a seed phrase, you also lose access to the money.
At the same time, hot options are more protected in those situations. You have a lower risk of losing your funds if you forget your password. Most hot storages offer plenty of recovery options.
Convenience
Hot options are easier to use: you can run it even from a smart TV or fridge. Most crypto services have Android, iOS, and web app versions. They also offer more features.
Cold wallets are a less accessible option: you need to physically connect them to the computer. Additionally, some cold storage is complex to set up. You’ll need to type keys for every transaction.
Non-custodial options are a lot easier to use. But if you decide to use non-custodial wallets, you’ll understand why they are the more favorable option for many experts. They are available as an app, so you can open your storage remotely. You still need to enter your keys since the service provider doesn’t store them.
What is Cold Storage in Crypto?
Crypto cold storage wallet syncs with the chain when you log into the service. But before it, your wallet was offline. And it will be offline once you deauthorize.
It’s a great option for long-term storage. No one can access the storage until you manually put the physical USB or type your private keys into the non-custodial option.
However, you should be aware of the wallet’s location. If someone stole it, they can get access to your money. If you lost the wallet, it’s over too. Your storage will remain offline forever.
Benefits and Drawbacks
Each option has its strengths and weaknesses. To ease the comparison, I’ve gathered them on the table.
|
Aspect |
Hot Wallets |
Cold Wallets |
|
Advantages |
Suit those who use crypto daily |
Suits people who are looking for long-term storage |
|
Immediate access |
Advanced protection from hacking attacks |
|
|
Enhanced features |
Protection from exchange failures |
|
|
User-friendly interface |
High-security levels |
|
|
Drawbacks |
Vulnerable to online threats |
It may not suit those who want a tool for daily usage |
|
You are trusting your money to a service |
Risk of physical loss of the hardware wallet |
|
|
No control over keys |
A hard to understand |
|
|
It’s risky to save a large amount of money |
Limited accessibility |
I know how hard it is to choose between two good things. But still, you need to select your main option. I recommend you consider your individual needs and risk profile.
How to Choose Between Hot and Cold Wallets
Service that fits young and risky students may not suit a 40-year-old traditional investor with a low-risk profile. Determine next points:
- How many digital currencies do you own? If you have only $100-200 worth, you can split it between multiple hot providers. If you need to store a significant amount of money, consider taking a cold wallet as your piggy bank.
- How often do you need that money? If frequently (at least a few times a week), consider a hot wallet as the main option. They are fast. But if you want to use a crypto wallet occasionally, choose a physical wallet.
- How high is your risk tolerance? If you don’t like to take risks, pick a cold storage wallet. If you are OK with possible hacking-related crypto risks, consider hot storage as the main option.
My strategy is to use both types. That way I can be sure that most of my digital savings are securely stored. At the same time, I have most of my crypto belongings in the non-custodial wallet. With Defiway built-in exchange and bridges I can exchange my tokens wherever needed. You can use the same strategy.
Wrapping Up: What Is A Crypto Cold Wallet And How It Differs From Hot
When it comes to storage, there is no one-for-all perfect solution. Pick the option that suits you. Hot options fit those who are looking for an instrument for user-friendly daily transactions. While choosing it beware that those wallets are highly vulnerable to online threats, including hacking and phishing.
Cold wallets are great for saving crypto, but they are not the best choice for daily usage. They are safe, but not convenient.
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