August 7, 2022
Hot vs cold wallets Hot vs cold wallets: pros and cons

Hot vs cold wallets: pros and cons

For absolutely any cryptocurrency transactions, you first need a special wallet. It is impossible to do without it, no matter what kind of coin you want to buy and for what purposes. Cryptocurrency vaults vary in the number of coins and features they support, but they are all classified as either cold or hot. What is the difference between cold and hot wallets and how to choose the best one for your purposes?

Cold or hot: main characteristicsHot vs cold wallets Hot vs cold wallets: pros and cons

Bitcoin cannot be bought and put in your pocket, so organizing the safe storage of digital money is the first task of a novice crypto investor. Most often, the first crypto wallet becomes hot. Later it can be supplemented with a cold one – many investors have several wallets for different cryptocurrencies and different purposes.

A cryptocurrency wallet is a special software that stores information about the state of your balance and generates access keys to funds. The coins themselves remain on the blockchain. This software comes in several forms:

  • On physical media.
  • As a desktop application.
  • Like a mobile app.
  • Like a browser extension.
  • As a service on the cryptocurrency exchange.

All wallets that are constantly connected to the Internet are included in the hot storage group. They are convenient for quick transactions with coins and tokens, whether it is a purchase, sale, XMR to BTC exchange or other exchange operation or payment for goods and services.

Cold wallets store cryptocurrencies offline, there is no permanent Internet connection. The vault is connected to the network as it is necessary to deposit or withdraw coins. For this, several or several tens of seconds are enough.

Features of different types of crypto wallets

Each type of storage has its own vulnerabilities, degrees of protection and usage possibilities. To simplify the choice, we present their distinctive features. Of course, you can use cryptocurrency for different purposes and combine storage methods.

Advantages of cold storage:

  • The maximum level of protection against hacker attacks due to autonomy from the Internet.
  • Ability to create one or more backups.
  • Pros of hot storage:
  • Permanent access to coins and fast transactions.
  • Support a large number of coins.
  • Ideal for novice investors and miners who have small amounts.
  • Free access to download programs.

The main disadvantage of this method of storing cryptocurrencies is a greater vulnerability compared to cold wallets. Therefore, they are usually used for small amounts of digital money and current expenses.

Cold storage is more preferable for long-term storage and accumulation of cryptocurrency. These wallets come as standalone portable devices or installed on a PC hard drive.

How to create a hot crypto wallet

You can download the program you need to your mobile or get access to the use of storage when registering on a cryptocurrency exchange. There are also sites on the Internet that specialize exclusively in storing digital coins.

Since mining is expensive, most cryptocurrency holders simply buy coins from exchanges. This is one of the easiest and most convenient ways to get a hot wallet without any extra steps. In addition, crypto exchanges provide additional opportunities for earning on cryptocurrencies.

To start an exchange crypto wallet, you need to register on the exchange. To do this, you need to select a trading platform, go to its website, click the “Register” button and step by step follow the steps that the system will require of you. In a simplified form, the algorithm looks like this:

  • Fill in all required fields of the standard registration form.
  • Activate the captcha and confirm the registration by clicking on the link sent to your email.
  • Sign in to your account.
  • On the main page of the “Wallet” or “Assets” section, select a coin and the “Deposit” item.

Actually, this procedure is completed. Please note that when registering an account, you may be required to take additional steps to verify your identity.

Approximately the same algorithm is used for registration on storage sites.

Applications for storing cryptocurrencies can be downloaded directly from the developer’s website. The most popular multi-currency wallets are Exodus, Guarda, Jaxx. Some of them come in desktop and mobile versions.

Cold crypto wallets

A desktop wallet can theoretically be cold too. This is possible if the device on which it is installed is used only for storing cryptocurrencies.

The maximum protection of your funds is provided by hardware wallets that connect to the Internet only at the time of use. Ledger and Trezor devices are leading in this class.

They are compatible with most operating systems and can be integrated with many popular hot wallets. The most significant drawback of such a device is the price, which starts at about $100.