Not only the concept of cryptocurrency is revolutionary in nature, but the methods available for its storage are also equally innovative. Bitcoin and other cryptocurrencies can be easily purchased, but when it comes to the storage option, the holder has to make a considerate decision to choose between the cold wallet and hot wallet option. The choice of storage option will have a significant impact on your investment and hence, the decision must be taken after conducting a comprehensive and thorough analysis. It is important to note that both hot and cold wallet options come with their own set of merits and demerits and you must know these characteristics so as to make an informed decision in this regard.
Hot and Cold Wallet: What’s the difference?
The primary difference between Hot and Cold wallet is their connectivity to the internet. While hot wallets are online (means connected to the internet), storage in cold wallets is purely offline. This difference in online connectivity has implications for the holder in terms of accessibility, convenience, and threat perception. Let’s find in detail both the cold wallet and hot wallet options and merits and demerits associated with each one of these options.
As mentioned above, the cold wallet is a method of storing cryptocurrencies offline. This option is preferred when the primary concern is the safety of digital assets rather than their accessibility. As assets are stored offline, they become less vulnerable to hacking or other malware attacks.
Paper wallets and hardware wallets are the two key options that you get in the cold wallet. A paper wallet is a print out of your private keys, although the option is risky as if you lose the paper and anyone else gets hold of your keys, then your assets become exposed to unauthorized access. The option of the hardware wallet is comparatively safer as your private keys are stored in a physical device rather than a paper print out. You can open store your funds in a secure cryptocurrency exchange, which is also a popular option available for holders.
This option is more popular and most widely used thanks to the feature of instant accessibility it provides to holders. Your assets are stored online here though this option is more vulnerable to cyber or malware attacks. We have had a number of incidents where cryptocurrency worth millions of dollars have been swindled online. You can easily download the wallet on your system or mobile phone, which provides the convenience of instant access to funds. However, it also means that you need to be very careful with the safety and security procedures as any laxity in this regard could prove to be very costly.
Merits and Demerits:
When it comes to advantages and disadvantages, both cold wallet and hot wallet have got their own share of positives and negatives. Cold wallets provide a high degree of safety and security to your digital assets, although it loses out on the aspect of instant accessibility. The option of a hot wallet, on the other hand, is instantly accessible and provides a high degree of convenience, although it is more vulnerable to cyber-attacks or online thefts.
We have a range of options available in both the hot wallet and cold wallet category. Among the hot wallets, we have BitGo, Green Address, Coinbase, Xapo, Coin.Space and Coinapult are the major ones, while in the case of the cold wallet category, the option of Ledger Nano X, Trezor, Armory, Electrum, OpenDime, and Secalot can be considered for storing the digital assets.