Today, we will talk about the cold wallet and hot wallet and the difference between the two to help you choose the most suitable type of crypto wallet.
Definition of Cold Wallet and Hot Wallet
Essentially, a cryptocurrency wallet, like the bitcoin wallet, is a digital bank account for cryptocurrencies that can store, send, and receive Bitcoin.
What is a cold wallet
To be more specific, a crypto wallet is software that stores the public key and the private key, manages crypto assets, and interacts with the blockchain network. There are two types of crypto wallets: cold wallets and hot wallets. All cold wallets are non-custodial wallets, meaning that only the wallet owner holds the private key that gives access to crypto assets.
What is a hot wallet
Hot wallets can be custodial or non-custodial, covering desktop wallets, mobile wallets, and web wallets. Standard hot wallets include Bitcoin-Core, ImToken, MYKEY, Scatter, Geth, Parity, etc.
Differences Between Cold Wallet and Hot Wallet
The chief difference between a cold wallet and a hot wallet lies in Internet connection: Hot wallets are online, while cold wallets are not. As such, cold wallets are regarded as a safer way to store crypto assets.
How a Hot Wallet Works
Hot wallets are the most common type of crypto wallet because they feature simple set-ups and ease of use. When you are registering an account on a crypto exchange or downloading a mobile wallet or a PC-based desktop wallet, you create a hot wallet. When using a hot wallet, as it is already connected to the Internet, you will only need to tap or click a few buttons on your smartphone or PC to trade cryptos seamlessly. Wallets offered by crypto exchanges are often hot wallets. Although hot wallets are known for their ease of use and convenient access to assets for crypto trades, they have a significant flaw: security. It is inadvisable to store massive crypto assets into a hot wallet because doing so means exposing your assets to potential security threats. The more sensible approach is to keep a small number of cryptos in a hot wallet and choose a cold wallet for long-term investment (i.e., cold storage). Hot wallets are suited for crypto users with everyday needs.
How a Cold Wallet Works
Cold wallets are seen as a safer solution for crypto storage because they are offline. A cold wallet is only online when the holder wishes to trade. Both hardware wallets and paper wallets are cold wallets. In particular, hardware wallets are more popular because they are easier to use. Hardware wallets rely on physical media, usually in the shape of a flash drive, to store the private key, making them virtually inaccessible to hackers or other malicious parties. Paper wallets have similar functions as hardware wallets. However, paper wallets are not physical equipment that resembles a flash drive. Instead, a paper wallet is a piece of paper containing your wallet's public address and the private key. Therefore, it must be securely stored in a vault or somewhere inaccessible to protect the cryptocurrencies from theft. The merit of cold wallets is enhanced security as the private key is stored offline. On the other hand, the flaw lies in the high expense and the additional steps required for transactions. In other words, these wallets are difficult to use and inconvenient.
How to Choose the Best Crypto Wallet
The choice of a crypto wallet entirely depends on your needs. If you frequently use cryptocurrencies, it will be best to store some cryptos in a mobile wallet. However, no matter which kind of wallet you choose, please make sure that it is a non-custodial wallet that allows you and you alone to hold the private key. In this way, you will have complete and sustained control over your crypto assets.