đź’ˇ TL;DR:
- Hot wallets: Platforms or applications that only enable users to make crypto transactions when there’s an Internet connection.
- Cold wallets: Physical gadgets like USBs that store and keep digital assets protected by offline private keys.
- Hot wallets are more user-friendly and cost-saving, while cold storages are more secure.
- Metamask and Coinbase are typical examples of hot wallets.
- Ledger cold wallets are the most popular hardware storage.
Hot and cold wallets are essential gadgets that any investor might have at least one to store and exchange cryptocurrencies conveniently. Investors should know exactly what differentiates the two types of wallets to decide which is more suitable for their needs.
Let’s find out the differences between hot and cold wallets and the most popular examples for each type in the article below.
What Are Crypto Wallets?
Cryptocurrency wallets are digital storages of cryptocurrencies and digital assets such as Bitcoin, Ethereum, NFTs, etc., with a specialized method of security: Private keys and seed phrases. Technically, users’ assets are not on these digital archives; they are actually stored on blockchains.
Crypto wallets help investors control their assets without knowing too much about algorithms on different chains. Users can utilize crypto wallets to buy, sell and store assets on DEXs, and CEXs.
In general, there are two common types of crypto wallets: hot and cold. Scroll down to dive deep into each type of wallet to see which is more suitable for you.
What Are Hot Wallets?
Hot wallets are platforms or applications on computers or mobile devices that only enable users to make crypto transactions when there’s an internet connection. Most hot wallets are accessible via browser extensions such as Metamask, Coin98 wallet, Phantom, etc. Now, top-notch exchanges, including Binance and Coinbase are also introducing hot wallets to enhance user experience.
Hot wallets are more popular than their counterparts, cold wallets, because of their convenience and cost-effectiveness. Besides, most hot wallets are free to use.
However, despite many advantages, hot wallets have high risks of being hacked. Users’ data is connected and stored on the Internet, which means hackers just need to attack the third-party storage to be able to take away the confidential crypto data – and that process is not complicated for hackers nowadays!
Pros
- Easy to setup and access
- Free to use
- Beginner-friendly interface
Cons
- Less secure than cold wallets
- Dependent on third-party storage
What Are Cold Wallets?
On the other hand, cold wallets, also known as hardware wallets, are physical gadgets that store and keep digital assets protected by offline private keys. Cold wallets often come as a USB that can be plugged into one’s computer. There are well-known cold wallets in the market right now that come from big technology companies such as Ledger and Trezor.
When using cold wallets, users might have more sense of security since data is stored offline, unlike hot wallets, which store information on the online Cloud managed by a service provider agency. In other words, no third parties can attack and steal their crypto data stored in cold wallets – they have full control.
However, to own a cold wallet, users might need to pay quite a significant amount of money. The price can range from $59 to $255 for a device.
Pros
- Much safer than hot wallets
- Can be carried around
- Don’t need Internet connection to function
Cons
- Expensive
- Hard to setup and use than online wallets
- Inconvenient when in need of quick use
Hot vs Cold Wallets: Comparison Table
| Hot wallets | Cold wallets | |
|---|---|---|
| Security | Weaker than cold wallets | High level of security |
| Accessibility | Requires Internet connection | No Internet connection needed |
| Price | Free of charge | Ranging from $79 to $255 per device |
| User-friendliness | Easy to register and use | Hard to use |
Hot vs Cold Wallets: A Detailed Comparison
Security
In terms of security, cold wallets are much preferred over hot wallets since they provide higher protection. Theoretically, hot wallets are always connected to the Internet, which makes it easier to access from everywhere. However, if you can connect your wallets quickly, others can too.
In fact, when using a hot wallet for data keeping, you actually “rent” space on a third-party data storage to keep your crypto information. That being said, you never actually have control of your data – you hire other people to help you keep it. Meanwhile, when using cold wallets, you buy a “space” and keep it privately alone without any other third party connected.
Accessibility
As mentioned above, hot wallets are much easier to access since they are connected to the Internet. No matter where you are, you can access your wallets to check the data as long as you have an Internet connection.
In contrast, you don’t need the Internet to use cold wallets for full functions – but you need a device that can read the wallets well to be able to access your crypto data. And not all devices are compatible the cold wallets, as we acknowledge.
Price
There are many free hot wallet options available on the Internet. If you pay for premium accounts, you may have more benefits and higher security; however, just a free account is enough for most beginner traders.
On the other hand, most cold wallets charge users quite a lot for their hardware. On average, it takes about $50 to own a cold wallet.
Ease of use
Let’s use a comparison to help you understand hot vs. cold wallets better. Just imagine hot wallets are the “Cloud” data storage and cold wallets are the soft disks, hard disks, or USB. The Cloud is always easy to use: you just need to register an account, sign in and upload the data.
Meanwhile, if you use a USB, you need to plug it into your device, check whether it is compatible or not, and then open the hardware to work with data. Obviously, there are more steps to do and more time to wait when using the hardware than the Cloud! That is the comparison of how user-friendly the hot vs. cold wallets are.
Top 3 Popular Crypto Wallets for Investors
Metamask
Metamask is one of the most commonly-used hot wallets available on the market.
In addition to providing a secure place to store and support more than 450,000 tokens on multiple chains, including testnets, Metamask also enables users to access certain dApps, decentralized exchanges and connect with renowned NFT marketplaces.
In addition, transactions on Metamask do not require any fees except costs associated with gas fees (which will be determined by connected dApps, exchanges, and chains).
In terms of convenience, Metamask can integrate with cold wallets to further enhance investors’ experience besides having the advantages of being a hot wallet.
Coinbase
Coinbase Wallet allows users to store more than 44,000 digital assets safely, engage with dApps and take control over their Ethereum-based NFTs on multiple chains. To add-in, there are no wallet fees or costs associated with using Coinbase Wallet.
Until now, Coinbase is still considered as the top secured hot storages in the crypto trading community. Many people on Quora recommended the app as the “top player” for new traders.
Coinbase | Source: Flickr
Ledger Wallets
Ledger is a French start-up that produces cold wallets with 2 versions of hardware: Ledger Nano S and X. These hardware wallets look similar to a USB thumb drive but feature a steel shell.
Any personal computer or mobile device that supports Bluetooth or USB can connect with Ledger wallets and facilitate transactions with diverse types of tokens and in an array of blockchains.
Ledger wallets also enable users to carry out a wide range of crypto-related tasks, such as sending and receiving tokens from multiple blockchains and using third-party applications on the gadget. Additionally, they excel at providing an excessively high level of security over digital assets.
However, Ledger charges users at least $59 to own these devices.
Conclusion
In short, in order to decide which type of wallet to be used, crypto users might need to understand their needs first before making any decision. If you are new to crypto, find it hard to learn complicated setups, want to do transactions quickly and frequently, or just don’t want to spend much money on wallets, then hot wallet is the right choice. In contrast, if you prioritize security, consider cold wallets instead.
