In the last several years, cryptocurrencies have become increasingly popular with more individuals and businesses focusing their attention on the digital assets market for both payment transactions and investment opportunities.

As with all new technologies, people are becoming increasingly vulnerable to cyber threats and hacking incidents causing them to lose some if not all of their investments.

In this blog, Crypto Analyst is going to explain the differences between hot wallets and cold wallets, helping you figure out which is best suited to your needs.

What is a Crypto Wallet?

A cryptocurrency wallet is a piece of software that allows users to manage, store, send and receive various cryptocurrencies. Unlike a traditional wallet that would hold your cash and bank cards, cryptocurrency wallets store both public and private keys. Think of these keys as your essential credentials that allow you secure access to your funds on the blockchain.

These wallets come in many different forms, but there are two main types of cryptocurrency wallets; “hot wallets” and “cold wallets”.

Hot Wallets – Easier to use, but considerably more vulnerable.

A “hot wallet” is classed as any cryptocurrency wallet that remains continuously connected to the internet. These wallets provide very quick and easy access to your assets, which has made them popular among traders who switch between exchanges and trade crypto frequently.

What are the different types of “hot wallets”?

– Web Wallets: These wallets are hosted via a third-party platform, such as exchanges. An example of this would be Coinbase or Crypto.com. These platforms store the private keys to the wallet on their servers.

– Mobile Wallets: These types of wallets are installed on the user’s smart phone. Examples of such wallets would be Trust Wallet and MetaMask. The main reason for these wallets is to allow the use the ability to make transactions on the go.

– Desktop Wallets: As with Mobile Wallets, these wallets are software based programs installed onto the users computer. Exodus and Electrum are two leading examples of Desktop Wallets. They aim to provide a balance between being easily accessed by the user and having good, reliable security.

Advantages of “hot wallets”.

– Convenience: They allow the user to have quick access to their funds for making payments, trading or transferring cryptocurrencies between accounts.

– User-Friendly: These wallets tend to be a lot easier to use, simpler to set up and have a much friendlier user interface, allowing for beginners to not get overwhelmed when attempting to complete a simple task.

– Multi-Platform Integration: “Hot wallets” are usually simple to connect with most decentralized applications and exchanges, with very few extra steps required by the user.

Risks of “hot wallets”.

– Security: Being constantly connected to the internet makes them easier and more at risk of hacking, phishing attempts and malware attacks.

– Relying on others security: Web wallets on exchanges hold the private keys of the user, meaning that you are reliant on the security of the platform not to be attacked or compromised.

– Device Failure: Losing access to your computer and/or mobile device could result in lost assets if you failed to setup proper recovery options.

Cold Wallets – Picking peace of mind over convenience.

A ”cold wallet” is a cryptocurrency storage method that keeps the private keys completely offline. This way of protecting the private keys significantly reduces the users expose to online threats. This has encouraged long-term holders and holders of large amounts of cryptocurrency to opt for using a “cold wallet” over any “hot wallet”.

What are the different types of “cold wallet”?

– Hardware Wallets: These wallets are physical devices that store all your private keys. Examples of these devices are the Ledger Nano and the Trezor.

– Paper Wallets: As it sounds, these are printed or written records of your private and public keys. As these keys are never stored online, they provide the maximum amount of security.

Advantages of “cold wallets”.

– Enhanced security: Storing the wallet keys offline all but eliminates exposure to hacking and other cyber based threats.

– Long-Term storage option: Better suited for long-term investors, allowing the user to gold cryptocurrencies for longer, extended periods of time without the need for frequent transactions.

– Total control over your assets: The owner of the “cold wallet” is in total control of their private keys, without relying on a third party.

Risks of “cold wallets”.

– Less convenient: These wallets are not ideal for users wishing to make daily transactions due to the keys being stored offline.

– Damage or loss of device: If your “cold wallet” or paper copies of your keys are destroyed, it is near impossible to recover any funds that were stored there.

– Complex setup: Each “cold wallet” requires carefully following the setup steps in ensure they are setup correctly and to avoid the misplacing of important and required information.

What wallet is right for you?

Choosing a wallet, between “hot wallets” and “cold wallets” depends on your daily use and overall goals within the cryptocurrency space. Frequent traders and decentralized exchanges users may be better going for a hot wallet, allowing them to access their assets regularly and quickly. More long-term investors would be better positioned in investing their time and money in a “cold wallet” for the highest possible level of security to ensure their assets always remain protected.

Crypto Analyst’s Final Thoughts.

Understanding the differences between these two wallet types is half the battle when it comes to deciding which one is right for you. Once you have done that, and mapped out your ideal usage and what you hope to achieve within cryptocurrency should make the choice between the two much simpler than when you first started.

By looking over your needs, following good security practises you can safeguard your assets in the ever-evolving cryptocurrency landscape.