Hot Wallets vs Cold Wallets: How to Keep Your Crypto Safe
Before getting to the hot and cold storage matter, we should understand why a crypto holder needs a digital wallet in the first place. Some people might say that storing the crypto you trade in on some exchange like Binance or Coinbase is the easiest way to keep your coins. The easiest option is not always the best one for a number of reasons. The first, and probably most important one, is security of your funds. Then comes flexibility, which is the ability to manage your assets and transfer it as you see fit.
In this guide, we will address the security and flexibility options of both crypto wallets types and see for ourselves why some types can be a better choice for a specific need, their pros and cons.
The debate ongoing forever
Any person who is familiar with crypto and spends time on crypto forums has heard about the unending war between cold wallets and hot wallets supporters. Some say that no device will protect your cryptocurrency better than cold wallets like Trezor or Nano, saying that this is the only storage type that can be considered a “wallet”. The others jokingly compare cold wallets to Stone Age tools saying that the convenience and ease-of-use should prevail in our life, as we should be able to manipulate our assets. The latter are right in one thing certainly – accepting and trading crypto is much easier with hot storage.
Cold storage Explained
As it was mentioned above, a cold wallet is a physical device designed to store cryptocurrency. This is a USB or hard drive offline device that allows you to receive and send transactions from it. For a transaction to be completed, however, there should be Internet on a device the cold wallet is plugged to. Let’s review the cold wallet pros and cons to get a clearer picture of this wallet type.
+Security. That would be the main advantage of cold storage. It is almost impossible to steal from such a device, as the private keys are not stored online – you can have it on a piece of paper or anywhere you want so hackers won’t have online access to it. The user generates all corresponding PIN codes and passwords used to access the device, and all transactions are conducted within the device so there the cold storage owner acts as an authorizer with no transaction going unapproved.
Another benefit is carrying funds in your pocket whenever you are, knowing that no fraud can get access to your cryptocurrency.
-Convenience. A cold wallet doesn’t offer you a lot of features, which makes you not so flexible when managing your crypto. First of all, there are not so many available cryptocurrency options to store as the crypto range is pretty narrow. If you have a diversified portfolio, cold storage might not be the best option for you. There is not enough room for crypto manipulation as well; a business owner who is looking for a convenient way to accept cryptocurrency will find it very problematic to authorize every single transaction before it will reach the cold storage. Second of all, cold wallets are expensive. An ordinary device price can vary between $50 - $200, so you will have to invest in good hardware to protect your assets from malicious threats.
Hot storage explained
The first thing that makes a hot wallet different from a cold one is that its system allows for operation via the Internet connection. This is not some device – hot storage can run on the cloud, as well as mobile or desktop device applications. In other words, it is a software wallet like Exodus or Metamask connected to the Internet. Let’s check the advantages and disadvantages of hot storage.
+Flexibility. The primary advantage of a hot wallet is definitely its ease-of-use. Any hot storage allows the users to access, send or receive crypto with no extra authorizations, time delays and offline to online transition. Being free of charge, this wallet type is extremely convenient for people who do online shopping or business. They’re easier to transfer crypto through exchanges and therefore provide a bigger trade volume. Unlike cold wallets, hot wallets allow for seamless and instant transactions and are fit to operate with any cryptocurrency processors. Plisio, for example, is a great gateway option to save both your time and money and works great with any hot wallet of your choice.
Hot wallets also provide their users with a wide range of available cryptocurrencies with many features and customization options.
-Protection. A hot wallet constantly being connected to the Internet constitutes a greater risk of hacker attacks in comparison to a cold wallet. One of the most prominent drawbacks is the fact that the user should be very careful with the private keys, especially how they are generated and stored. Anyone who has access to it will be able to manipulate your funds freely. One thing is clear: keeping large sums in a hot wallet is not the smartest idea in terms of safety. The good thing about the hot wallet mobility is that you can always add more funds if you need it or instantly withdraw them whenever you need it. Safety comes first!
Both options can work together
A smart crypto trader always finds a balance between safety and mobility so there is no need to limit yourself to a particular storage type. They could work best for you together – a cold wallet for keeping your savings safe, a hot one to conduct online transactions. Besides, with the cryptocurrency market growth rate, interested developers create more and more hot wallets with enhanced security features. Even if you’re still concerned about the security being not good enough, cryptocurrency payment gateways like Plisio can guarantee the safety of your transactions. Among their security tools are SSL protection, two-factor authentication and only trusted IPs support, which will compensate for any flaws in the hot wallet protection.