If you are unfamiliar with crypto wallets are or have questions on how they work, we recommend you read this article first: A Simple Introduction to Crypto Wallets
- A hot wallet is connected to the internet and could be vulnerable to online attacks — which could lead to stolen funds — but it’s faster and makes it easier to trade or spend crypto.
- Ease-of-use. Because they are always online, there’s no need to transition between offline and online to make a cryptocurrency transaction
- Convenient to access funds for trading since it is already connected to the internet.
- Free. Hot crypto wallets are either available for free or bear symbolic maintenance costs.
- Shared Responsibility of Security: Most web-based crypto wallets are custodial wallets. By using the hot wallets provided by exchanges like Coinbase, users also get their deposits insured.
- Prone to theft. Any items stored in a hot wallet are vulnerable to attack because the public and private keys are stored on the Internet.
- Third-party dependence. Most of the hot wallets provided by the exchanges don’t give you access to your private keys. You only get a login and password to access your account.
- A cold wallet is typically not connected to the internet, so while it may be more secure, it’s less convenient
- Security. You don’t entrust any third party with your private keys. The wallet is not connected to the Internet, so it cannot be hacked. Stealing from a cold wallet usually would require physical possession of or access to the cold wallet, as well as any associated PINs or passwords that must be used to access the funds
- Recovery. At the time of the initial configuration, you will need to write down a 12-to-24-word recovery phrase. You can use this recovery phrase to recover your wallet in any software wallet and receive your assets back immediately
- Inconvenience. Even if the transaction itself takes the same time, you’ll need more time to access the cold wallet device
- High price. Whereas many online crypto-wallets are available for free or have low fees, cold hardware wallets cost about $100 on average.
- Limits. They usually don’t accept as many cryptocurrencies as most of the hot wallets do. Hence, if you prefer crypto that’s not yet very popular, cold wallets may not support it.
- Use a combination of a cold wallet and a hot wallet.
- Keep a cold wallet like a bank account stored in a secure location at home. The cold wallet is where you should store majority of your funds
- You can store your crypto wallet in multiple cold wallets. This way one cold wallet can act as a backup of your primary in case your cold wallet becomes defective.
- Keep a paper record of your recovery phrase in an extremely secure location. This can be a personal safe at home or a safety deposit box at the bank. If anyone gets access to this phrase, they also have full access to your funds.
- If you need to sell or transfer crypto, you can withdraw from your cold wallet to your hot wallet