Wallets are software programs and devices which store the private and public keys of Bitcoins and other cryptocurrencies. There are various types of wallets, but the main categories in which they can be divided are cold wallets and hot wallets. In this article, we will debate which advantages and disadvantages come with each type of wallet so you can choose which one is right for you and your needs.
Hot wallets are wallets that are connected to the Internet and they also come in different categories.
Desktop wallets are a form of hot wallets which is installed on your personal computer. Users have control over their private keys, and they also have the option to encrypt their wallet to prevent hacking attempts.
Desktop wallets are considered to be the most secure option as when it comes to hot wallets, but may not be practical for day traders that want to buy and sell cryptocurrencies quickly. Desktop wallets also have more options regarding the selection of cryptocurrencies that can be stored on them.
However, the download and setup processes of some desktop wallets can sometimes require some technical expertise which may prove to be difficult for those that are new to cryptocurrency. A big disadvantage to desktop wallets is that if it gets stolen or damages access to your cryptocurrency can be permanently lost as a proper backup system is not implemented.
Mobile wallets are smartphone apps that run on mobile devices. They are the most practical kind of hot wallets and are ideal for traders that are always on the run.
However, although some mobile wallets feature multi-signature security options, they are not as secure, and should not be storing large amounts of crypto. Some of the mobile wallets do not give their users access to their private keys, which can be a problem.
Online wallets, or website wallets, are the type of wallet operated through an online platform, making them the most prone to hacking. Because of this, they are mostly recommended for short-term trading.
The advantage is that they can be accessed from any device that is connected to the internet, and transactions can be made fast and easy. Online wallets are the most secure when used in tandem with a secure desktop or offline wallet.
The security of hot wallets depends on what security habits the users have and that of the involved third parties. Such platforms are vulnerable to hacks because they are constantly connected to the internet.
Storing small amounts of digital currency in hot wallets is fine because hackers probably won’t waste their time and resources to access small sums of money. There have been many cases of theft which involved hot wallets. Millions of dollars’ worth of Bitcoin have reportedly been stolen in hacking attempts (see Mt Gox incident).
Cold wallets are the storage method of choice for hodlers of a significant amount of Bitcoins. Types of cold wallets are: paper wallets and hardware wallets.
Paper wallets are documents on which all the data necessary for generating Bitcoins is printed on. They are ideal for long-term storing, as no one can hack paper. The downside is that they can be stolen or damaged due to improper storage conditions. The storage of Bitcoins on paper wallets should be done with very strict measures during the printing preparations to make everything secure.
Hardware wallets are physical offline devices that look similar to a USB with an interface, which can be plugged into your computer when you want to transfer cryptos. As they are not connected to the internet during seed generation and allows you to keep both your private and public keys, they are considered to be the most secure storing option.
Which Kind of Wallet Do I Need?
Now that you have been introduced to the main wallet types, we will go over the main aspects and features so you can make an informed decision and select the one that matches your needs.
If you plan on trading often, a hot wallet is a better option
If you are interested in HODLing larger amounts of cryptocurrency for a longer period of time for their value to increase, then a cold wallet is recommended as it has the strongest security.
Traders that are looking to store more types of altcoins, should look for a wallet that offers compatibility for a wider selection of cryptos.
You should look for a wallet that has an interface with which you can interact easily. If you are more tech-savvy and can handle more complex installations and procedures, then you can opt to use one that fits your level of knowledge. It would be time-consuming and frustrating to own a wallet which has functions that you can’t master.
Ask yourself if you can take care of a physical wallet or if it is difficult for you to keep it safe.
Security wise, if you are looking for the best security measures, then a cold wallet would be the ideal choice.
With this, we conclude our article on hot and cold wallets. We hope that the information we presented here will be of help in the process of finding the perfect wallet for you.