Hot Wallet, Cold Wallet

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Hot wallets, cold wallets.. what’s the deal?

Is your wallet Hot or Cold?

If you buy any amount of crypto and you want to store it yourself, you have to choose between holding your cryptocurrency in a “hot” wallet, a “cold” wallet, or using a combination of the two. A hot wallet is connected to the internet and could be vulnerable to online attacks — which could lead to stolen funds — but it’s faster and makes it easier to trade or spend crypto. A cold wallet is typically not connected to the internet, so while it may be more secure, it’s less convenient. Should you use hot wallets, cold wallets, or a combination? Generally, cold storage wallets are quite secure. Stealing from a cold wallet usually would require physical possession of or access to the cold wallet, as well as any associated PINs or passwords that must be used to access the funds. Most hardware wallets are cold wallets and live on devices that look like a small to medium-sized USB stick. Paper wallets, physical bitcoins, or a secondary offline computer used to store cryptocurrency are also cold storage wallet options. However, while still fairly secure, these methods have fallen out of favor and been replaced by reputable, high-quality hardware wallets or very secure cold-storage options available on reputable exchanges.

Hardware wallets are designed to be immune to hacking. Even when a hardware wallet is plugged into your computer or connected via Bluetooth, depending on the storage method, the funds stored on the drive are difficult or

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even impossible to steal. While technically connected to the internet, the signing of transactions is done “in-device,” and only subsequently broadcast to the network via your computer’s internet connection. This “signature” allows you to assign ownership to the recipient of a cryptocurrency transaction. Because your private keys never leave the device, however, even if devious malware on your computer tried to steal your funds by maliciously “signing” a transaction initiated in your hardware wallet it would not be the correct signature so the transaction would not go through. Given the trade-offs when using either type of crypto wallet, a combination of cold and hot wallets is usually ideal. You want to strike a balance between the accessibility of a hot wallet, and the peace of mind and security of a cold wallet. Many will end up with several versions of each: an exchange account hot wallet, a mobile hot wallet, and a hardware cold wallet. Each crypto wallet can be used for a specific purpose, thus creating a balance between ease of use and security when using and trading cryptocurrency. Another popular trend is using a second phone that functions only as a mobile crypto cold wallet. When using a cell phone as a cold wallet, you would only turn it on when you want to make a transaction. The secondary phone acting as a cold wallet is then connected to your primary phone via bluetooth or WiFi and funds are transferred to your hot wallet for the transaction. After the transaction is made, the WiFi or bluetooth connectivity is turned off and the secondary phone is powered down. Many find this more convenient than a hardware wallet, while also offering the peace of mind that comes with knowing your cryptocurrency is safe and secure.