Introduction
Just like traditional money where you keep it safe in banks, in cryptocurrencies there's a crypto wallet, a tool used to store your digital assets. When it comes to storing cryptocurrency, you have two main options: hot wallets and cold wallets. Both types are built to provide users the same purpose of allowing them to store the keys which enables them to access their cryptos, however, they do so in different ways. So, in this guide, let's break down the key differences between them.
What are Hot Wallets?
Let's start with the first type of wallet which are hot wallets. These are online wallets that keep your cryptocurrency keys stored on devices connected to the internet. These wallets are built to be purposely user-friendly, allowing you to easily send, receive and manage your cryptocurrencies. And since these are always online, hot wallets are the most preferred option for individuals who are looking for quick transactions and frequent trading.
What's even greater is that you can easily access hot wallets through various devices, including smartphones, tablets, and laptops. Thus, it's surely meant for individuals who are on the go, the main reason why many cryptocurrency users prefer hot wallets is because they make it simple to handle crypto transactions without needing to go through complex steps.
Common Types of Hot Wallets
There are various types of hot wallets and each is designed for different purposes. Here are a few popular ones:
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Coinbase Wallet - This is a wallet that's solely linked to the Coinbase exchange. This is meant to make transactions easy and seamless for users of that particular platform.
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MetaMask - This is an exclusive wallet for Ethereum users only. This allows them to manage Ethereum-based tokens.
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Trust Wallet - Now, this is a versatile type of hot wallet. This supports over 300 different cryptocurrencies and is available to both web and mobile interfaces.
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Exodus Wallet - This software wallet supports a wide range of cryptocurrencies and offers many features.
There are several factors to consider before choosing a wallet that would suit your preference, this includes design, fees, and integration with exchanges. Thus, before selecting a wallet for your digital funds, always do your research to find the fit for your needs.
What Are Cold Wallets?
Now, let's move forward to the second option, the cold wallets. These wallets, on the other hand, are not connected to the internet. That being said, these wallets are much more secure against hacking attempts and other online threats. Cold wallets are often physical devices that you can hold in your hand, like USB drivers.
The key advantage and the main difference of cold wallets from hot wallets is that they keep your private keys offline, making it unexposed to the risk of theft. However, the downside is that it's less convenient for quick transactions, where if you are bound to make a transaction, you'll need to transfer your keys to a hot wallet first.
Common Types of Cold Wallets
Just like hot wallets, cold wallets come in different forms as well. Here are some common types:
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Paper Wallet - As what the name implies, a paper wallet contains your public and private keys printed on a piece of paper. You also have the option to include QR codes for easy transactions. The disadvantage though is if the paper gets damaged or lost, you could lose access to your crypto.
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Hardware Wallet - These are physical devices that securely store your keys. These tools would usually look similar with USB drives or smart cards. Some of the most popular hardware wallets in today's market are Trezor, Ledger, and KeepKey.
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Deep Cold Storage - This option isn't a specific wallet type as it's more of a strategy on how to incorporate extra measures to keep your wallet secure. This method could be similar to storing your money in a safe or a bank deposit box. Thus, this is more ideal for those who don't need to access their crypto often.
How Do Hot and Cold Wallets Compare?
Now that you understand what hot and cold wallets are, let's compare them.
Security
When it comes to security, cold wallets are the most secure since they aren't connected to the internet, making it much harder for hackers to access them. On the other hand, hot wallets, while convenient, are more vulnerable to hacking since they are always online.
Convenience
In this factor, hot wallets win. These wallets allow you to quickly access your funds and trade cryptocurrencies without delay. In contrast, when using cold wallets, you will most likely be required to make more steps to access your crypto, making them less ideal for everyday use.
Cost
Hot wallets can be easily gotten online, whereas they're usually free or if not, minimal fees are only associated with them. If you're new to this, you might want to check out our Beginner's Guide To Setting Up Crypto Wallet. While cold wallets, especially hardware ones, can cost between $50 to $200, depending on the brand and features.
Conclusion
Hot and cold wallets serve different purposes in the cryptocurrency world. Understanding the differences between them will help you make informed decisions about how to store and manage your digital assets. Always remember to research and choose the wallet types that suit your needs for both security and usability.
