Confused about Hot and Cold Crypto wallets — Get it clear here

The usage of wallets is getting deduced due to the arrival of many digital payments. People carry their mobile phones instead of their credit cards and debit cards and even fiat currency. In this world, where the payments had become so familiar and cozy, the need for the wallet is rising again. But this time it is not the physical wallet but a digital form of the wallet where you need to store all your cryptocurrencies in it. Accordingly, the crypto wallets are of two types — hot and cold wallets. But what are crypto wallets? How are they different? Before getting into the difference we can get to know the answers to these questions.

What is a crypto wallet?

What do you do if you want to store your money when you take it out of your ATM. You will keep it in your wallet, right. Similar is the working of the crypto wallet. If you want to transact the cryptos more efficiently, you need to store them in your digital wallet. The digital wallet that is used to store the cryptocurrencies is the crypto wallet. Crypto wallets store the cryptocurrencies with utmost security. Because cyber threats have been on the rise, all the crypto wallets are built-in with security features with the basic security of blockchain technology.

Crypto wallets work with the help of keys. With the private key and public key, the user can access the information in his wallet and send or receive the cryptocurrencies. If you want to send cryptocurrency he accesses the private key to send the crypto to the targeted account. If he wants to receive the cryptocurrency, he should access the public key to receive the crypto from the sender. This is how the crypto wallets work.

Type of Crypto wallets:

There are three major types of crypto wallets in the crypto market right now. They are

  1. Hot wallet
  2. Cold wallet
  3. Warm wallet

Among these three, the hot and the cold wallets are the most used wallets by the traders and the crypto investors. The warm wallet is the recently emerging concept and it is nothing but the mixture of properties of the hot and cold wallets without deteriorating their uniqueness.

Hot wallets:

A hot wallet is a kind of digital wallet that operates online to store, send, and receive cryptocurrencies. It is a type of security wallet where it is enveloped by blockchain and other security features and protected by additional keys like the private and public keys. They operate purely online and they are managed, hashed, and ledgered by the blockchain. If you want to do basic transactions to your friend or foe, you can do with the hot wallets within a fraction of minutes. With the help of the public keys and the private keys, the user can receive and send the cryptocurrencies without revealing the information to the public. The public key helps the user to receive the information without revealing any kind of information and the private key is used to send the cryptocurrencies.

Most of the experienced crypto investors would put only a minimal amount of cryptos into their hot wallets. It is because of their security flaws. Despite the security features, there are chances that your wallet would be hacked by any cyber threatening organizations.

There are many types of hot wallets but the most prominent among them are cloud wallets and the Multi-signature wallets.

Cloud wallets are a type of wallet that can help you to connect to your wallet if you connect from any sort of device, say, laptop or computer, or even your mobile. The only thing is that your IP should have synced with the wallet. This will make the transfer more efficient and helpful than the cold wallets. All you need to be aware of is to prevent hacking of your electronic devices using certain protective technology.

Multi-signature wallets are one of the most protective forms of hot wallets. It is because it needs two to more security keys to access the funds. You have to log in with 2-factor authentication and when you are going to send or receive the funds, it will be asking for another sort of security key authentication to process further. Like this, they are multi-protected wallets that have the capability of storing your cryptocurrencies efficiently.

Certain disadvantages are prevailing around the usage of hot wallets. One such is the prevalence of cyber threats. Despite the security parameters offered by the blockchain, there is always a threat over its security because it is operated in the cloud technology. Blockchain does not provide security to the centralized database where a collection of data for the whole management is stored.

But despite these discrepancies, Hot wallets is one such epic move for the crypto lovers to send and effectively receive cryptocurrencies in a short period without any hassles.

Cold wallets:

Compared to the hot wallets, cold wallets are different in approach. While hot wallets work online, cold wallets work offline. That is surprising right. But that is the main function of the cold wallets. Due to this feature, they are often called “Hardware Wallets”.When you think of a cold wallet, you will think that this is a hardware one and it will be expensive. But it is completely wrong. Hardware wallets are not at all expensive. One such example is the paper wallet. A paper wallet is a kind of hardware wallet that is kind of inexpensive and easy to create. You will not need to reach the cryptocurrency wallet development companies to initiate a paper wallet. But when it comes to other forms of hot or cold wallets, you will need one.

Some known benefits of the cold wallets include:

  1. They are completely safe as they cannot be hacked through cyber attacks.
  2. They are not expensive wallets and can be generated easily.
  3. You can store the cryptocurrencies for a long time without any discrepancies.
  4. You can take them wherever you go and it is completely mobile efficient. You can store them even in your pen drive.
  5. Some examples of hardware wallets include Ledger, Trezor, Keepkey, etc.

Despite its security, cold wallets do have their loopholes. Yes, if you are holding a hardware wallet, then you should be aware of your wallet as if it is lost, your funds too will be lost. Also, not all the hardware wallets are so cheap. Some of the hardware wallets like Trezor wallets may cost up to 400 USD.

With the clearance of the facts about these two wallets, there will be still confusion on which wallet to store your cryptocurrencies, right? No worries. Consider the below factors and choose accordingly.

  1. Size and frequency of the usage of the wallet:
  2. The portfolio of usage of wallet — Planned or unplanned?
  3. Based on your device and security:
  4. Amount of risks that you are willing to take on your funds.
  5. Personal liability of your keys.

If you are a regular user of cryptos and want to send and receive cryptos that are unplanned, then you can go with hot wallets. Hot wallets make transactions more quick and efficient.

If you are a person who stakes coins and invests in coins once in a while, then you can go with a cold wallet. Cold wallets are offline and can operate whenever you want to do so based on the requirement.

Wrapping it up:

Be it hot wallets or cold wallets, each of them has a uniqueness in it. It has undeniable advantages and at the same time, some disadvantages that we can tolerate. So, it is best to choose the best cryptocurrency wallet development company and get their assistance before creating your wallet.

All the best for your future cryptopreneurial ventures.




Blockchain Entrepreneur and investor. Cryptoprenuer to be precise. Guiding Crypto enthusiasts and CEOs. You know what, Blockchain is a revolution.

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MathiBharathi Mariselvan

MathiBharathi Mariselvan

Blockchain Entrepreneur and investor. Cryptoprenuer to be precise. Guiding Crypto enthusiasts and CEOs. You know what, Blockchain is a revolution.

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