Hot and cold wallets
"Hot" and "Cold" Wallets are commonly used terms in the crypto community to describe two main methods of storing cryptocurrency.
Hot wallet
A hot wallet is connected to the internet and is constantly available for online transactions. It is typically used for convenience and quick access to funds. Examples of hot wallets include wallets provided by exchanges or online services.
In general, hot wallets offer convenience and quick access but require more attention to security. It is recommended to use hot wallets for small amounts and day-to-day transactions, and consider using cold wallets for long-term storage or significant sums.
Advantages of hot wallets
1. Convenience and quick access. Hot wallets are usually easy to set up and allow for fast transactions. They are suitable for daily cryptocurrency operations.
2. Integration with exchanges and services. Hot wallets often offer integration with exchanges and other online services, making it easier to buy, sell, and exchange cryptocurrencies.
3. Accessibility from different devices. Hot wallets can be used on different devices, such as computers, smartphones, or tablets, allowing access to funds at any time.
Disadvantages of hot wallets
1. Vulnerability to cyber attacks. Since hot wallets are connected to the internet, they can be at risk of cyber attacks, hacking, or phishing. If an attacker gains access to private keys or passwords, they can access your funds.
2. Risks of third-party storage. If you use a hot wallet provided by an exchange or online service, you are essentially trusting them with the storage of your funds. In the event of a hack or improper security practices by the service provider, your funds may be lost.
3. Limited control over private keys. In the case of a hot wallet provided by a third party, you do not have full control over your private keys. This can be problematic if the third party encounters issues or ceases its operations.
Cold wallet
A cold wallet (or "cold storage") is a method of storing cryptocurrency where private keys (or seed phrases) are kept offline. Cold wallets are typically physical devices, such as hardware wallets or applications on a flash drive, that are connected to a computer only for transaction purposes. Paper wallets, where the secret keys are written down, also exist.
Cold wallets are considered more secure as they are not connected to the internet and are not susceptible to online threats or hacking. They provide an additional level of security for storing cryptocurrencies.
Advantages of cold wallets
1. Security. Cold wallets are considered more secure as private keys are stored offline. This means they are not vulnerable to cyber attacks or hacking over the internet. Your cryptocurrency will be protected from online threats.
2. Control over private keys. When using a cold wallet, you have full control over your private keys. You are not dependent on third parties and have complete access to your funds. This gives you greater independence and control.
3. Long-term storage. Cold wallets are ideal for long-term storage of cryptocurrencies. They provide an additional level of protection against the loss or theft of your funds.
Disadvantages of cold wallets
1. Limited mobility. Cold wallets are usually physical objects that are stored in a special room or safe. This means that you cannot use them when you are far away from the place of storage. If the cold wallet is stored with you (for example, on a microSD card in a wallet), you will need to find a computer connected to the internet with a reading interface to perform a transaction.
2. Possibility of physical loss or damage. Like any physical object, a cold wallet can be lost, stolen, or damaged. In this case, if you have not made backups of your private keys, access to the funds may be lost.
3. Complication of the transaction process. When using a cold wallet to perform transactions, you may need to connect it to a computer or another device. This can be somewhat inconvenient and take more time than using a hot wallet.
Links
- Cold and Hot Cryptocurrency Wallets: What's the Difference and How to Create Them? · Crypto on VC.ru