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Cold vs Hot Wallet - Which is better?

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Avatar for nervi
Written by   5
11 months ago

When choosing a cryptocurrency wallet, we need to decide where we will keep our savings and assets. In this comparison, I omit exchange wallets because they should not be considered as a safe wallet to hold cryptocurrencies for many years.

Hot Wallets are cryptocurrency wallets for your computer, phone and in browser plugins. These include Trust Wallet, Metamask or Exodus. Cold Wallet are hardware and paper (yes! paper) wallets such as Trezor or Ledger.

Wallets can be custodial or non-custodial. A non-custodial wallet is a wallet where only the owner with the keys to the wallet can use the funds. Hot wallets are often custodial and more attention needs to be paid to them.

So why do people choose hot wallets? Because they are easy to set up and simple to use. When we download a wallet whether it is to a computer or a phone, we create a hot wallet and with it private recovery codes, the so-called seed phrase. Hot wallets are wallets for everyday use of cryptocurrencies. If we perform daily operations on the exchange, transfer money then we want to use this type of wallet. The advantage of being connected to the Internet is the speed of performing transactions. We choose the recipient, enter the amount and we have already made the transaction.

However, one should be careful. Holding very large amounts of assets on such a wallet may be asking for trouble. Internet thieves in a sneaky way can steal your money using, for example, Phishing.

Cold wallets are definitely one of the most secure ways to hold cryptocurrencies. They are not connected to the internet all the time and only we have access to them. Over the past years, wallets have been improved with a small screen on the wallet or more assets that can be held (Trezor Model T for example). To hold crypto in such a wallet we need to send cryptocurrencies from the hot wallet to the public address of our cold wallet. Conversely, when we want to send something outside, we connect the wallet to the internet and confirm the transaction this time with a private key.

The downside of using Cold Wallet is that it is too concerned with security in the context of everyday cryptocurrency use. It simply becomes impractical and pointless for a long time.

In conclusion, which wallet we choose must depend on what we need cryptocurrencies for. If it's going to be for round-the-clock transfers then we choose a good and trusted Hot Wallet. If we are going to HODL then it is better to invest in Cold Wallet. But no matter which wallet we choose, we have to make sure that the wallet is non-custodial. This way only we have the power over the crypto holding.


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Avatar for nervi
Written by   5
11 months ago
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