In recent times, our way of perceiving money has been changing. And cryptocurrencies have much influence on that. Cryptocurrency is successfully grabbing the attention of governments across the world, business tycoons, technology giants, investors, enterprises, and at large, the mass.
With the rise of crypto investment trends, every financial investor chooses to invest in cryptocurrencies. To do that, a crypto wallet is to be used. Now, coming to talk about the types of wallets, they are basically of two types, i.e., hot and cold wallets. Getting a wallet will help with bitcoin mining.
Before we get into the differences and characteristics of the mentioned-above wallets, first, we need to understand what the crypto wallet is. A crypto wallet is like a traditional wallet that keeps your money safe.
Overview of Hot Wallets
Between the two types of crypto wallets, this one is connected to the internet all the time. Hot wallets are more popular because they are quite easy to set up. Also, you can easily use it without facing any difficulty.
Suppose you download the mobile, desktop, or laptop wallets or open an account on any exchange; it is a hot wallet. Because these types of wallets always require an internet connection.
We use hot wallets for everyday trading or usage. You can use it with just clicks on buttons, and it is that easy to operate. However, the security is less when it comes to hot wallets.
When trading on an exchange platform, using a hot wallet is important. However, as the security is less, it is advised not to put more crypto assets in this wallet. In fact, some exchanges encourage their users to put the maximum share on a cold wallet and put a very little portion in the hot wallet, which they will be using on a day-to-day basis.
The reason is that it will only leave the asset under potential threats. So, keeping your long-term investments in a hot wallet is not advisable.
The hot wallet can be further classified into:
- Desktop Wallet
- Web Wallet
- Mobile Wallet
Overview of Cold Wallets
In comparison with the hot wallet, the cold wallet holds more security. These types of wallets don’t require internet connection, and you only need to connect it with the internet when there is a need to make any transaction.
Because of the features, cold wallets are also known as the offline wallet or hardware wallet. There are also several forms of cold wallet based on the application or the devices in which the asset of yours is stored in.
There are two types of cold wallets:
- Paper wallet
- Cold wallet
Hot Wallets vs. Cold Wallets- Some Major Differences
There are various differences between hot and cold wallets in terms of security, operational processes, and many more. Keep reading to more about it.
Hot wallets always have an internet connection and have storage for the private keys while operating online. On the other hand, the cold wallets have storage for the private keys offline.
As the hot wallets are always connected to the internet, the transaction process of crypto coins is really fast. You can easily and directly send and receive crypto coins from one hot wallet to another hot wallet. However, in the cold wallet, the operation starts online and then goes back to offline storage to get the private keys signed. Then, again it becomes online and completes the transaction following the usual process.
Now, coming to the most important part of this discussion, i.e., security, you should note that as the hot wallets require internet connection, they are most likely exposed to hackers because it is always connected to the internet, and it is more prone to theft. On the other hand, the cold wallets, offline wallets, are safer, and the private keys are not exposed; therefore, it always provides better security.
The cold and hot wallets have their features and differences. However, both are important for different purposes. We recommend using the cold wallet for bigger amounts and long-term storage; however, hot wallets for your daily trading on the exchanges or other payments.