What is the difference between Hot wallets  and Cold wallets?


Put simply, A Hot Wallet is one which is connected to the internet and a Cold Wallet is stored offline.

Hot Wallets are things such as accounts you have at an exchange, internet based wallets, microwallets.

Cold Wallets are things such as those stored on a USB Device or maybe paper, although you can get some now which look like a credit card.

Pros & Cons of hot wallets and cold wallets

Online Wallets (Hot wallets)

Easier to access funds from most online devices such as Desktop, Laptop, Tablet or Phone

Normally you can recover your account if you forget keys or passwords, so long as you still have access to the e-mail you signed up with
If the company disappears you could lose funds. This happened with Westland Storage, they disappeared overnight.

Could be hacked, even funds with an online exchange could get hacked, this has happened to sites such as Nicehash Mining and Bitfenix Exchange

Sometimes transactions will cost more in fees, that’s happened recently with Ethereum and the networks Gas Fee’s.

Software Wallets (Can be either Hot or Cold)

If is a cold wallet then your funds are safer from hackers, although if your computer is compromised then so could your wallet.

You are more in control of your funds and not reliant on 3rd party websites.

Usually less fees are involved when performing transactions.
If your computer is compromised you could lose your funds to hackers.

If you lose your keys or passwords it could be hard or impossible to recover your funds.

Some wallets need synchronizing with transaction nodes, meaning it is less convenient than using online wallets.

Hardware or Paper Wallets (Cold wallets)

Can not be hacked as is offline, and your funds are not connected to the internet.

Some of the hardware wallets use a system to backup your keys if you lose your device, allowing you to recover your account.

Is good for storing large amounts of cryptocurrency in a safe place.
Is more technical to use and setup cold storage.

If you lose your device, your funds could be lost forever.

Not all cryptocurrencies support cold storage.

Most devices are expensive

Creating a wallet

Each Cryptocurrency created has a different wallet software which you can download to your computer. However there are multiwallets such as Jaxx Liberty and Zelcore. Some wallets need to download the blockchain history before they work, this can be very time consuming.

So some will find online wallets much easier, online options include services such as Coinbase or Binance.

If you want to hold large portfolio’s of Cryptocurrency, then you’re best to use a Hardware Wallet for Cold Storage, the top 3 brands are Trezor, Ledger and Keepkey.

DISCLAIMER: This is a guide based on my experiences with Bitcoin and other cryptocurrencies and is not an endorsement of the goods or services mentioned in this guide. This is not legal advice or financial advice and any investments you make in cryptocurrencies are at your own risk and you should seek advice from a professional financial or legal advisor. The author has tried to make the guide as accurately as possible at the time of writing, and takes no responsibility for the information given in this guide.


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