Hot Wallet vs Cold Wallet

A wallet is an essential tool for anyone diving into the world of cryptocurrencies. As a beginner, finding the right wallet to fit one's needs is not always an easy task. There are so many to choose from: physical, paper, online, local, etc. To better understand the concept of a wallet and know which one to use, we will look at the fundamental differences between a Hot wallet and a Cold wallet.

Hot Wallet vs Cold Wallet

Table of contents




Crypto Wallet: What is it?

A crypto wallet is an essential tool for anyone who wants to own cryptocurrencies. A wallet does not store your cryptocurrencies in a centralized way like a traditional bank account can. Your cryptocurrency funds are stored in a decentralized way on the blockchain. The crypto wallet allows you to interact with the blockchain by sending, receiving or making transactions in cryptocurrencies like Bitcoin and Ethereum. There are several ways to access your crypto wallet: computer via desktop crypto (Exodus), on mobile apps (Coinbase Wallet) or online via a browser extension (Metamask).

To learn more about the different types of wallets, read Choosing the Right Wallet: Understanding the Basics 

Hot Wallet

This is a wallet in which the private keys are stored "hot." This means that the private keys are stored in a location that is directly connected to the internet. This type of wallet is widely used for managing one's cryptocurrencies on a daily basis. Its main advantage is that it allows for quick access to one's funds. However, its disadvantage is that it increases one's exposure to malicious attacks on the internet more than other types of wallets.

The hot wallet can come in different forms: a web service like a centralized exchange wallet, a web extension or a mobile app.

Finally, while it is very useful for managing one's funds on a daily basis, it is not recommended for storing one's cryptocurrencies for the long-term.

Cold Wallet

This is a wallet in which the private keys are stored "cold." This means that the private keys are stored offline, with no direct access to the internet. This type of wallet is mainly used for storing large amounts or preserving funds for the long-term. Its advantage is that it reduces the risk of cyberattacks. However, its disadvantage is that it is less user-friendly and depending on the form it takes, it can easily be lost. Nevertheless, to date, the cold wallet remains one of the most secure ways to hold cryptocurrencies.

The cold wallet can take different forms, but the most commonly used are the paper wallet and the Ledger-type physical wallet.

What is the best wallet?

Each type of wallet has its own advantages and disadvantages. Choosing a wallet will depend on the level of experience and needs of each individual. But it is difficult to say which wallet is better than the other. That's why, as with investments, it's best to diversify the types of wallets used.

Finally, before choosing a wallet, it's important to know your goals to find the wallet that best meets your needs.

 

Check out our recommended article, which has been read by other users interested in this topic: Which Ledger to choose? Complete comparison of Ledger hardware wallets

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