Hot Wallets vs Cold Wallets, What Is The Better Choice?
- 1. What is a hot wallet?
- 2. What is a cold wallet?
- 3. Hot vs Cold Wallets
- 3.1 Security
- 3.2 Token supports
- 3.3 Transaction speed
- 3.4 Number of Tokens that can be stored
- 3.5 Price
- 3.6 Verify the identity
- 4. Should I use a hot wallet or a cold wallet?
- 4.1 Who should use hot wallets?
- 4.2 Who Should Use a Cold Wallet?
- 5. Safety actions when using crypto wallets
Hot wallets vs Cold wallets, where is the safest place to store cryptocurrencies? Should newbies use hot wallets or cold wallets? In the article below, let's explore the details of these two wallets with BHO Network.
1. What is a hot wallet?
Hot Wallet is a crypto term. It is used to store cryptocurrencies. It's called a hot wallet because it is often connected to the Internet. Thanks to such frequent connections to the Internet, it is quite handy. But hot wallets are easily vulnerable to cyber attacks.
Types of hot wallets:
- Exchange wallets: This type of wallet is created and managed by exchanges. It's like opening an account at a bank and depositing money into it. The exchange will help you preserve the cryptocurrency in that hot wallet.
- Software wallet: It is an application on mobile devices that act as a wallet. Some examples are Trust Wallet, Blockchain.com or MyEther Wallet, etc. These wallets are entirely separate and only have the task of storing, transferring and receiving money.
A hot wallet is handy because it's connected to the Internet.
- It can be accessed and perform transactions quickly when connected to the Internet.
- Easy to use.
- Because the hot wallet is always connected to the Internet, it is easy for hackers and viruses to attack and steal the money.
- You must verify your account identity to use a hot wallet on an exchange.
2. What is a cold wallet?
Cold Wallet is also used to store cryptocurrencies. However, it does not connect to the Internet like hot wallets; cold wallets only connect when needed for transactions.
Some types of cold wallets are
- Software wallets: It's the same mobile application wallets mentioned above. If you have wifi / 3G-4G /sim removal, your devices will become a cold wallet.
- Hardware wallets: Such as Trezor or Ledger Nano S. This is a popular cold wallet that is trusted by many users today. It stores many different cryptocurrencies, which can only be accessed when you own the device. You must connect and confirm through the device when making a transaction on a computer.
Cold wallets will connect to the Internet when making transactions.
Currently, cold wallets range from $70 - $90. Especially when buying a cold wallet, you should only buy directly from a wallet brand, do not buy a used wallet or a wallet that has lost its seal if you do not have technical knowledge.
But if you have Crypto knowledge, you can still reinstall these wallets and use them as usual.
- Token security at the highest level, almost absolute safety.
- Token assets are always kept offline, isolated from the Internet.
- Practically impossible to hack.
- Cold wallets without needing to verify account identity like hot wallets at Exchanges.
- It's not free
Read more: What is DAO? How does DAO work?
3. Hot vs Cold Wallets
In this section, we will compare the two wallets to determine the best choice. We invite you to read along.
A cold wallet is a device with the highest security because it is always offline, and the data is protected by a hardware security chip that cannot be hacked. Meanwhile, the hot wallet always maintains an Internet connection and is an ideal target for hackers and viruses.
3.2 Token supports
Large exchanges usually develop hot Wallet, so it always supports many different types of Tokens to stimulate users to use transactions on the exchange. Cold wallets are developed by manufacturers such as Ledger, Trezor, etc. Therefore, the number of tokens supported is not as varied as on hot wallets.
A cold wallet doesn't support many types of tokens
3.3 Transaction speed
Hot wallets are always connected to the Internet, so you can easily connect and operate anytime, anywhere. As for the cold wallet, you will store a large amount of Tokens for a long time, so when you want to transact, you need to connect the cold wallet to your computer or phone. So the time to make the impact is more and longer than hot wallet.
3.4 Number of Tokens that can be stored
Basically, you can store as much as you want with both wallets. However, to ensure safety and reduce risks, you should save just enough amount of token on hot wallets for trading purposes. As for cold wallets, you can safely store a great number of tokens for a long time.
Hot wallet is free, while cold wallet isn't. So if the amount of money you invest in cryptocurrencies is more than the price of a cold wallet, you should buy a cold wallet immediately to ensure your money is always safe.
You must pay to use a cold wallet
3.6 Verify the identity
You just need to buy and use a cold wallet, but with a hot wallet, you usually have to verify the account identity with an ID card or Passport. Otherwise, it will limit the amount of money you can transact daily.
4. Should I use a hot wallet or a cold wallet?
After comprehending the features and limitations of hot and cold wallets, many wonders which wallet to use, well, it depends.
4.1 Who should use hot wallets?
With the advantages of a hot wallet often connected to the Internet, we can easily see that it is perfectly suitable for the following two groups of people.
- Investors who often trade cryptocurrencies. Let's say you are a person who regularly does transactions on a cryptocurrency exchange. You will need some kind of wallet that works fast and connects easily. At this point, you can use the exchange fee to facilitate transactions.
- New investors entering the market should also use hot wallets. Because using this type of wallet is not too complicated. Assuming you use an exchange wallet, if you forget your password, you can still get it back. Thus, you will limit the risks that may occur when you do not have much experience.
Hot Wallet is good for newcomers
4.2 Who Should Use a Cold Wallet?
Cold wallets are suitable for the following people: Value investors. They don't often buy and sell cryptocurrencies. With them, the cryptocurrency will be stored for a long time.
Investors who own a large amount of money. With the feature of not connecting to the Internet, it can be said that cold wallets are nearly absolutely safe. Therefore, you should consider using this wallet with an extensive investment portfolio.
Cold wallets are suitable for investors who follow a long-term investment
Read more: What is Meme Coin? Everything you need to know about Meme Coin
5. Safety actions when using crypto wallets
- Using cold wallets: cold wallets are not connected to the Internet, so they are difficult to attack. It would be best if you stored the public key in a cold wallet, preferably a hardware wallet.
- Maintain multiple wallets: many apps and websites allow users to create wallets for free and with an unlimited number of wallets. You can store your crypto assets in multiple wallets. Diversification is an effective way to limit risk.
- Use secure Internet: while conducting cryptocurrency transactions, use only a secure Internet connection and avoid public wifi networks—only use and login to websites with valid HTTPS certificates.
- Personal device security: make sure your devices are virus-free and use the latest updates. Use an anti-virus program to improve the security of your device. This is a measure to prevent hackers from attacking security holes.
- Beware of scam sites: make sure you are logging in to the correct website address of the exchange or online wallet and not a fake website. In fact, there are many phishing websites created with the aim of stealing user login data.
- Always double-check the address of the crypto wallet: Some malicious programs can change the address of the exchange wallet you copied, causing you to send money to the wrong address. You must double-check to make sure the wallet address after pasting is correct.
To avoid data theft, don't log in to fake websites
- What are NFT games? Top 20 Earning NFT Games in 2022?
- What is Hedge? How to use Hedging strategy in trading
Hot wallets and cold wallets have great features and limitations. Depending on your needs, you can decide which type of wallet is suitable. Hopefully, BHO Network has helped you find the answer you're looking for. Keep following our website to explore helpful information.
Published on January 12, 2022
Bitcoin plunges: A bust or a buy?
Cryptocurrencies that seemed to be defying gravity just weeks ago came back down to earth with a bump on Wednesday after a roller-coaster ride which could undermine their potential as mainstream investments
June 03, 2021
Crypto recovery is happening
Market shows signs of crypto recovery
July 07, 2021
Blockchain 101: What is blockchain, and how does it work?
Blockchain for beginners
July 10, 2021
Vietnam & Singapore to Negotiate on Digital Trade Agreement
What could this deal mean for investors in these two countries?
July 13, 2021
Familiarized yourself with crypto via these terms
Get started on your crypto journey with these terms!
July 14, 2021
How to do a referral?
3 simple steps for you to do a referral and earn an attractive commission!
August 25, 2021
What's the difference between CEX and DEX?
How well do you understand the two types of exchanges in the crypto markets?
August 26, 2021
Crypto terms you should know
Do you know what do all these terms mean in the crypto world? Part 2!
August 30, 2021