Cold vs hot crypto wallets: What to choose?

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Technically, all crypto wallets are divided into two groups: cold and hot. Their diversity is directly dictated by the difference in the goals of the owners of digital currencies. Which one is right for you?

Cold storage is a small physical device. Hot wallets are called software wallets in the desktop, mobile or browser version. This group also includes all web wallets available as a service on a cryptocurrency exchange or a specialized website. If you have used the services of a centralized cryptocurrency exchange at least once to exchange TFUEL to USD, you already have hot storage.

Features of cold crypto wallets

Cold storages do not have a permanent connection to the Internet. The device itself may look like a keychain, credit card or USB flash drive. If you transfer coins to it, they will be practically invulnerable to cybercriminals. The device itself can be stored in a safe or other safe place.

In case of loss or damage to the device, the developers provide for the possibility of restoring access to coins. For this, a seed phrase is used, which is generated during device setup. It needs to be written down and stored even more carefully than even the gadget itself.

If something happens to your main device, using this phrase you can restore access to coins. If you lose your seed phrase, your assets will also be lost forever.

Pros and cons of cold storage

Cold wallets are designed to store cryptocurrencies as securely as possible. They are an ideal solution for long-term storage of coins and are not very convenient for everyday crypto transactions.

The miniature device can be carried with you, which is very convenient in case of a sudden move. A huge plus of hardware storage is the ability to restore access to coins.

It is quite logical that hardware devices are not free and some models are very expensive. This can be considered their disadvantage, although if you are thinking about purchasing such a gadget, then its price will certainly not scare you. Moreover, it is absolutely not necessary to buy the most expensive model. Much more problems can arise due to the language barrier if there is not a single model on the market that is fully translated into a language you understand.

Features of hot crypto wallets

Hot wallets are crypto wallets with a permanent connection to the Internet. With such a wallet, it is technically possible to perform any action with digital assets from anywhere in the world where there is access to the network. If you use the mobile version of the vault, then your coins are always with you in the truest sense of the word.

A hot wallet is much more convenient for everyday use, whether it’s buying goods or active trading. However, the convenience of access to assets for the owner means their potential vulnerability. This does not mean that a hot wallet is not worth your attention. You do not refuse a regular wallet just because it can fall out of your pocket or become the prey of pickpockets.

Pros and cons of hot wallets

Hot wallets are more convenient for quick settlements in cryptocurrency. Software crypto wallets are freely available, easy to install and configure.

The main disadvantage of all software versions is a reduced level of security. If access to assets is lost for some reason, it is not always possible to restore it and not in all wallets. It is worth remembering about the possibility of blocking coins by the creators of the program, although this applies more to exchange vaults.

Which wallet to choose

Just because you have a wallet doesn’t mean you can’t buy a safe or rent a safe deposit box to keep a large amount of cash in. Conversely, you will not constantly carry the safe with you if you have a wallet or cardholder for this. If you urgently need to partially exchange JPY to GBP from your stocks, you will simply take them from the safe. The ratio of hot and cold storage for cryptocurrencies is approximately the same. So, the selection criteria:

  • How much cryptocurrency do you have?
  • For what purpose do you need it?
  • How often do you use or plan to use cryptocurrency?
  • How exactly do you use it?

Your first crypto wallet will most likely be hot. It is better to store small amounts in it for daily activities. For the accumulation and long-term storage of large amounts, experts recommend purchasing a hardware wallet.

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