Before you decide between choosing a cold or hot storage wallet, you need to understand the differences between the two digital asset storage. We will help you understand the difference in this article but before then, let us start with the basics; what are digital wallets?
A digital wallet (mobile wallet or e-wallet) is a software, online service, or electronic device that allows individuals or businesses to make transactions electronically. Digital wallets serve as a convenient way to store and manage different forms of digital payment like credit and debit card information or bank account information. Apple Pay. Google Pay and PayPal are some popular examples of digital wallets.
Hot Wallets
Hot wallet is a cryptocurrency wallet that is constantly connected to the internet or another connected device. They can function as cold wallets and are used as temporary crypto key storage. They are also used to send or receive cryptocurrency. Hot wallet interface also enables users to view the amount of tokens they have. There are numerous hot wallets, and most of them are free to download, examples of hot wallets include Coinbase Wallet, MetaMask, and Edge Wallet.
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SubscribeCold Wallets
Cold wallet is a cryptocurrency wallet that is not, has not been, and will not be connected to the internet. Cold wallet’s main purpose is to store crypto keys. Cold wallet stores data offline completely so it is certain that data is not vulnerable to hacking threats. The most common types of cold wallets are hardware and metal wallets.
A hardware wallet is a physical device specially designed to store crypto keys. Metal wallets are physical metal objects where information a user needs to access digital assets is engraved. Metal wallets are improvements to paper wallets. A paper wallet is a written list of words or characters to hide a secret code, it used to be the common way to store information relating to a cold wallet. However, paper wallets are vulnerable to natural disasters and accidents so metal wallet is favored over paper wallets.
Comparing Hot and Cold Wallets
Understanding the differences between these two digital asset storage is important for you to make a good decision on what type of wallet you are to use. In this section, we will categorize the differences into three:
- Accessibility and Convenience
Hot wallets foster accessibility and convenience, their user-friendly interfaces enable users to easily manage their crypto anytime, anywhere with an internet connection. Cold wallets are not convenient for day-to-day use, they are more suited for long-term storage hereby offering better security.
- Cost Considerations
Hot wallets are more cost-effective for short-term use or daily usage. Hot wallet providers provide mobile and web-based platforms for free. However, cold wallets require significant investment, quality hardware would cost at least $60 to $200 and the user needs to acquire technical knowledge while the metal wallet would require a few dollars to a hundred dollars to purchase a specially built metal wallet. And if you decide to do it yourself, you’ll still need to purchase some parts from a hardware store.
- Security Features
Hot wallets are constantly connected to the internet and are vulnerable to security threats. Crypto keys are stored on servers or internet-connected devices and are susceptible to hacking attempts. Some hot wallet providers are putting measures in place to enhance hot wallet security, some measures in place include encryption, multi-signature support, and two-factor authentication (2FA). Cold wallets offer better security by keeping crypto keys offline, this ensures that hackers cannot find their way to extract a user’s crypto key.
When considering what wallet to choose you could consider factors such as security- this should be your top priority, also consider how frequently you intend to spend from your crypto wallet.
Final Thoughts
Your preference between cold and hot wallets depends on what you need, your risk tolerance, and how well you use your digital assets. Hot wallets offer ease of access and convenience, it are suitable for active traders and daily crypto users. Cold wallets offer better security for storing vast amounts of cryptocurrency for a lengthy duration.
