Those interested in the world of cryptocurrencies have surely heard of Hot Wallet and Cold Wallet, but what is the difference? Of course, their name is a big clue. Both fulfill the basic function of any wallet, that is, to store money, in this case, to store crypto.
However, the Hot Wallet is mainly characterized by the fact that it is connected to the Internet all the time. This means that users of a Hot Wallet can use it instantly to interact with other users on the network. Thus, they can transfer cryptocurrencies through the different crypto platforms on the web, or buy and sell them on the online marketplaces known as exchanges.
Due to its dynamism and fast access to the network, this wallet is a favorite of traders who make cryptocurrency transactions on a daily basis. However, the big disadvantage of the Hot Wallet is its very nature. As it is always connected to the network, it is exposed to being hacked. Even a user’s carelessness, revealing to someone else his wallet login and password, is enough to give that person the possibility to take the cryptocurrencies stored there without leaving a trace and without turning back.
The crypto Cold Wallet, on the other hand, has a higher level of security, since it is not always connected to the Internet. In very general terms, this wallet stores crypto assets in a physical magnetic device, similar to a USB memory stick, in which the record of your transfers between the web and the wallet remains, so it requires other software to perform any operation.
It looks very secure, and in fact it is. It is therefore preferred by those who store big amounts of crypto without movement for long periods of time. But, since it is hardware, it involves buying a device that can cost between $50 and $200. It is also very impractical if you want to sell or transfer your cryptocurrencies to another wallet. And of course, it’s a physical device, so it’s exposed to damage in real life!
It should be noted that there are other subcategories, known as Custodial and Non-Custodial Wallets. They are essentially differentiated by the parties involved in the use of the Wallet. The custodial one involves a third party, who manages your private keys, e.g. mobile banking providers. On the other hand, a non-custodial wallet allows you to maintain full control, as you manage your keys on your own. Taking this into account, it is possible to state that any Cold Wallet is non-custodial, while a Hot Wallet can be both custodial or non-custodial.
It is not really possible to give a universal answer on which one is better, since it depends on many factors, e.g. how many transfers do you want to make? How much crypto will you store? And why not take advantage of both?
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