It wasn’t so long ago that cryptocurrencies were relatively unheard of. Now, just about everyone knows what they are.
If you want to buy some crypto, whether that’s to trade with it or to hold on as an investment, you are likely left wondering what the best means of storage is. In this guide, we’ll give you a rundown on crypto wallets, discuss the differences between hot and cold wallets and help you figure out which is the best for you.
What are Crypto Wallets?
If we want to understand what crypto wallets are, first we need to understand what cryptocurrencies are and how they work.
Crypto is a form of digital currency that exists solely in the digital sphere. You can’t hold cryptocurrencies in your hand or put them into a physical wallet, like the one you’d keep in your pocket. This means we need a digital wallet to store them in. That’s just what a crypto wallet is – a digital wallet where you can store digital assets like cryptocurrencies.
However, it’s not a case of filling your crypto wallet up with individual Bitcoin and Litecoin, it’s a bit more complex than that. When you buy cryptocurrency, a record of the transaction is recorded on the blockchain. Special keycodes are stored in your wallet that correspond to the relevant blockchain transaction, proving that you are the owner of that cryptocurrency.
The above is a basic overview of what crypto wallets are and how they work. While there are many more technical processes going on under the hood, this is a good foundation of knowledge that you can use to kickstart your crypto adventure.
As you research the subject further, you’re going to notice that crypto wallets fall into two broad categories. There are hot wallets and there are cold wallets. What are the differences between these two types? Find out below.
Hot Crypto Wallets
The most common kind of crypto wallet you’re going to come across is the hot crypto wallet. To put it simply, hot crypto wallets are wallets that are always connected to the internet or some kind of online network.
The biggest benefit of hot crypto wallets is their convenience. When you buy crypto, keys will be sent to your wallet straight away. Similarly, when you sell crypto, your wallet will send the keys out to the relevant party. Right at the moment you’re checking the Shiba Inu price, you’ll know that you can buy it and keep it in a hot wallet connected to the exchange.
Hot wallets make the buying and selling of crypto incredibly easy. Think of your wallet as a hub that allows you to control your assets.
However, being connected to the internet is also the root cause of the biggest drawback of hot wallets. They can be vulnerable to attacks from scammers and cybercriminals, who may attempt to compromise your wallet and steal your crypto.
Cold Crypto Wallets
Cold crypto wallets are the opposite of hot wallets. While hot wallets are always connected to the internet, cold wallets always remain offline.
The obvious advantage here is that cold wallets are far safer and more secure than their hot counterparts. As they are never connected to the internet, they cannot be targeted by hackers and criminals, ensuring your crypto stays safe at all times.
Cold wallets are also more versatile. While you can get software-based versions, you can, in theory, use anything as a cold wallet. You could write down your crypto keys in a document and store them on a USB, or you could even write them down on paper and store them physically.
However, this also puts cold wallets at a disadvantage. They are less convenient to use and can make the process of buying, selling and transferring crypto more tedious and time-consuming. You will have to manually transfer keys to and from your cold wallet, the process cannot be automated as easily as with hot wallets.
What Kind of Wallet to Choose
Now that we understand the differences between hot and cold crypto wallets, let’s talk about what kind of wallet is best for you.
The type of wallet you choose will ultimately depend on what you’re doing with your crypto. If you’re looking to buy and sell crypto frequently, and to make trades with various currencies and across platforms, a hot wallet is definitely the best choice. With a hot wallet, you’ll be able to move assets around with ease.
However, if you intend on buying crypto as a long-term investment and have no plans to make any immediate trades, a cold wallet could be a more suitable option. These can remain dormant for long periods and will never be vulnerable to hacking, perfect for holding an investment long-term.
The world of cryptocurrency can be confusing. There are lots of technical concepts and ideas to contend with. If you want to get involved with crypto trading and investing, it’s important you learn all you can and understand the key concepts to the best of your ability. Wallets are integral to cryptocurrency, use this guide to learn about the difference between hot and cold wallets and decide what’s best for you.