Hot and Cold Digital Wallets

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Do you need a wallet for everyday purchases or just for buying and holding digital currency for future investment? If you answered yes to either or to both questions, then you need to learn about hot wallets and cold wallets, and this article will do just that. But it is important to note that this classification of digital wallets as hot or cold is based only on the frequency of their usage, otherwise there are other classifications too.

Hot wallets

These are wallets for everyday usage. Usually, they take the form of web or mobile wallets. They can be compared to checking accounts because they allow you quick, easy and instant access and transactions of your funds. Exchanges that pay out withdrawals instantly, do so from hot wallets. However, it is not advisable to store large sums of money in hot wallets.

The main reason is that the wallets are in constant connection with the blockchain due to the frequency of use. And, no matter how careful you are, you will agree with me that the internet is susceptible to hackers, regulations and other technical vulnerabilities that are beyond your control.

To avoid worries should any misfortune happen to your wallet, isn’t it safer to store only your allowance in hot wallet, while keeping the bulk of your savings away from prying eyes of internet hackers? If your answer is yes, then, that is where cold wallets come in.

Cold wallets

These wallets can be compared to your personal bank account since they are not for frequent use. The money kept here is often large sums of money, especially money that you don’t need to use immediately. This money will be safe and hard to reach. To understand cold wallets here are some basic features:

First, a cold wallet is an offline digital wallet meaning it is stored on a platform that is not connected to the internet. This unique feature ensures that the wallet is inaccessible to an unauthorized person (cyber hacks and others).
Second, a cold wallet is usually a hardware wallet, and this is a device with only one program, which is nearly impossible to hack (e.g. USB drives, paper wallets, and other offline storage media). It could also be a wallet which you download to a smartphone which you never connect to the Internet.
Finally, to make it even more secure, the address is not published anywhere, neither is it sent to anyone. In fact, it is recommended that the device is not stored at home but rather in a bank while its key, or a mnemonic phrase, should be stored elsewhere.

How to choose a wallet?

Now you can choose the type of wallet that is suitable to your need. If you need a wallet for everyday purchases, then your choice should be a hot wallet but, if you need a wallet for buying and holding digital currencies for future investment, then a cold wallet is your choice.

For your information, there are other classifications of cryptocurrency wallets: Light & Full-Node wallets, custodial & non-custodial wallets, and some others.

What about you? Do you have both cold & hot wallets or just one type is enough for you? Share your experience and ask questions in the comments below.

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