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Difference between Hot Wallets and Cold Wallets

Difference between Hot Wallets and Cold Wallets image

In the cryptocurrency world, wallets are devices and software where you can store both public and private keys cryptocurrencies such as Bitcoin. You will be able to choose between cold wallets and hot wallets. While both of them are useful in storing cryptocurrencies, they have certain differences. So, what is the difference between hot wallets and cold wallets? 

Hot Wallets

By their nature, hot wallets are internet-based and funds stored in them can be accessed virtually from anywhere. Although more common than the cold wallets, hot wallets come with a higher risk, given that hackers could access them using your sign-in credentials. Most cryptocurrency exchanges have some form of hot wallets available to their users. They exist in the following forms:

1. Desktop Wallets

This kind of hot wallets is usually installed on the user’s PC. Apart from having the ability to encrypt the wallet, users are fully in control of their private keys. Among all the hot wallets, this kind is considered the most secure. Besides, you can store different types of cryptocurrencies in these wallets at the same time. Only that they are not great when it comes to facilitating quick transactions on cryptocurrency exchanges. Also, they lack a proper backup system, thus making it easier for you to lose money when they are stolen or impossible to access.

2. Mobile Wallets

Mobile wallets exist in the form of apps that are installed on smartphones. If you are involved in on-the-go cryptocurrency trading, this is the kind of wallet you should go for. These wallets aren’t as secure as the hardware wallets.

3. Online Wallets

These are website-based wallets, usually operated by going online. Because of that, they are more risky, given that they can be compromised by hackers. Cryptocurrency exchanges recommend online wallets for short-term trading. You can access them from virtually anywhere and using any device that connects to the internet. If you must have an online wallet, only store in it small amounts of coins.

Cold Wallets

If you have a significant amount of cryptocurrencies, what you need is a cold wallet. Cold wallets aren’t connected to the internet and are, therefore, harder for hackers to access and steal your coins. They exist in the form of the following:

1. Hardware Wallets

Hardware wallets are devices that look like USB sticks and are used to store coins offline. Whenever you need to transfer cryptocurrencies to and from the devices, all you need to do is plug them into a computer. They keep public and private keys more securely, given that they are hardly connected to the internet. They are best if you are storing your coins for long periods of time.

2. Paper Wallets

If you don’t trust electronic cryptocurrency wallets, you may want to print data for generating cryptocurrencies on a piece of paper. You can use paper wallets for your long-term storage needs. Unless someone steals the paper, there is no way you will lose your cryptocurrencies to hackers.

As you can see, the major difference between hot wallets and cold wallets is that the former is internet-based while the latter isn’t. When choosing which type of wallet to use, put into your consideration your immediate needs, duration of storage, and security. If you regularly participate in cryptocurrency mining, you may want to have both types.

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