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Hot vs cold crypto wallet: Which one is best suited to your needs?

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Hot vs cold crypto wallet: Which one is best suited to your needs?

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There are two kinds of crypto wallets you can choose from, hot and cold. Both offer different functionalities, and you need to choose one based on your needs.

Hot vs cold crypto wallet: Which one is best suited to your needs?
Think of a crypto wallet as a digital account for your cryptocurrency. It enables you to send, receive and store crypto with complete ease. And most importantly, it keeps your cryptocurrency safe. Only after entering your private key, which is like a password, can you access your wallet and carry out any transactions.
There are two kinds of wallets you can choose from, hot and cold. Both offer different functionalities, and you need to choose one based on your needs. Not sure which one is best for you? Tag along as we briefly explain both these wallets, how they work, their pros and their cons.
Hot Wallets:
A hot wallet is akin to the physical one you carry along wherever you go. You can open it anytime and access funds to make purchases whenever you wish. Hot wallets are connected to the internet 24x7, and their private keys are stored on a cloud. Some examples of hot wallets are WazirX, CoinDCX, and CoinSwitch Kuber.
Advantages:
  1. User-friendly: Can be created within minutes
  2. Convenient: Can be accessed anytime, anywhere
  3. Backup Options: If your private key is lost, you can contact the service provider to recover it or get a new one
  4. Multi-token: All kinds of tokens can be stored and exchanged
  5. Free: Provided by crypto exchanges for no charges
  6. Disadvantages:
    1. Vulnerable: Prone to cyberattacks and hacks since it is connected to the internet 24x7
    2. Dependence: The service provider is entrusted with safeguarding your assets
    3. Uncertain: If the service provider shuts shop, you lose all your crypto assets
    4. How do you keep hot wallets safe?
      You can use a strong password that is still easy to memorise as you will require it every time you wish to transact. You can even minimise risk by maintaining a low crypto inventory. Large amounts stored in hot wallets are likely to be more prone to cyber theft.
      Who is this suitable for?
      Since hot wallets are designed to operate online, they are best suited for traders who need to execute a series of profitable trades within short spans of time. They are also good for conservative investors who hold only small amounts of crypto. Hot wallets should be used for transacting and not crypto storage.
      Cold Wallets:
      A cold wallet is like a vault for your valuables. It is a specially designed offline device that is typically in the shape of a USB drive or an external hard drive. These devices are not connected to the internet and need to be connected to a PC to carry out transactions. Two common examples of a cold wallet are Ledger and Trezor.
      Advantages:
      1. Safe: Since they are offline devices, they are generally invulnerable to cyberattacks or hacks
      2. Robust Security: Before transacting, the hardware device asks for user confirmation on the device itself and not any third-party software.Disadvantages:
        1. Expensive: Unlike free hot wallets hosted by a service provider, these are personal belongings and hence come at a cost.
        2. Not User-friendly: At least 10 minutes are required to set these devices up.
        3. Inconvenient: Must be plugged into a computer to enable transactions. Some devices do allow mobile connections via Bluetooth or Wi-Fi. In either case, the convenience drops.How do you keep cold wallets safe?
        4. Since you hold your private key, in this case, you should jot it down on a piece of paper that only you can access. Users are even known to laminate private key papers and store them in bank vaults. This is because there is no service provider you can call upon to provide a backup in case you forget the password. Your cold wallet should also be locked away in a safe place where physical damage is unlikely.
          Who is this suitable for?
          These are best suited for crypto-asset storage, especially long-term crypto holders. These are even beneficial to ‘crypto whales’ (individuals who store large amounts of crypto worth a lot of money) as their assets need heavy protection.
          Which one is better?
          The answer to that can be summed up in one line – “It depends on the kind of investment strategy you use: short-term trading or long-term investing.
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