The hot wallet vs. cold wallet debate and what it means for the safely of your crypto holdings

Finding the right crypto wallet takes a bit of DYOR. But with this convenient guide, you can get to know the two major types of crypto wallets and see how the hot wallet vs. cold wallet debate plays out for you. Let’s have a chilling start and begin with cold wallets.

What are cold wallets for crypto?

A cold wallet, also known as cold storage, is a type of cryptocurrency wallet that is not connected to the internet. Its primary purpose is to help you secure your cryptocurrencies away from potential online threats like hackers, malware, and phishing attacks.

Cold wallets allow users to generate their private keys offline, reducing the risk of the keys being intercepted or stolen.

The most common types of cold wallets

Cold wallets come in several varieties, including hardware wallets, paper wallets, and air-gapped devices:

• Hardware Wallets: Devices like Trezor are similar in size to a flash drive but highly specialized for making secure cryptocurrency transactions. They all you to generate and store your private keys offline but can be connected to a device (like a computer) for making transactions. Even when connected, the private keys remain offline and inside the device.
• Paper Wallets: These are physical documents that display your private and public keys, usually in the form of QR codes. A paper wallet can also just be a piece of paper or an engraving with the mnemonic seed phrase (private keys) printed. Paper wallets are generated offline and can be printed for physical safekeeping. When you want to move your crypto around, you’ll need to go online, get your physical copy, and type in the seed phrase or scan it online.
• Air-gapped Devices: Some users might opt to use a separate device or computer that's never connected to the Internet (air-gapped) to generate and store their private keys. This may take some know-how in order to keep the computer operating offline without updates.

Cold storage considerations

While cold storage is considered one of the safest ways to store your private keys, it's essential to remember that you're responsible for safeguarding your cold wallet. If a hardware wallet is lost or a paper wallet is destroyed, and no backup exists, the cryptocurrencies stored on them can be permanently inaccessible.

Always ensure you have secure backups and follow best security practices when managing your cryptocurrencies.

What are crypto hot wallets?

A hot wallet refers to any cryptocurrency wallet that is connected to the internet. It provides easy and quick access to cryptocurrency assets, making them suitable for everyday transactions.

Unlike cold wallets, hot wallets allow users to easily access their private keys while online. This makes it easy and convenient, but hot wallets also come with potential security risks due to their online vulnerabilities.

Types of hot wallets

• Desktop Wallets: These are software applications downloaded and installed on a personal computer or laptop. They can only be accessed from the device on which they were installed.
• Mobile Wallets: A popular hot wallet choice, mobile wallets are applications designed for smartphones, allowing users to manage their crypto on the go. 
• Web Wallets: Accessed through web browsers, web wallets such as MetaMask are hosted on online platforms and used by the everyday crypto user.
• Exchange Wallets: When you register on a cryptocurrency exchange platform, the exchange often provides you with a desktop wallet to store and manage your assets on their platform. 
• Social Recovery Wallets: A mobile wallet like Gridlock uses social recovery and distributed key generation, which mitigates much of the risk associated with having your private keys in an online environment. 

Vulnerabilities with hot wallets

Being online, hot wallets are at risk of a range of online threats, such as hacking, phishing attacks, malware, and more.

Best practices: Focus on security measures like strong, unique passwords, two-factor authentication (2FA), and regularly updating your wallet’s software.

Have a backup: Always back up your wallet and its recovery phrases. If you lose access to your hot wallet (e.g., if your phone is lost or stolen), a backup can help restore your funds.

Hot wallets have flexibility and convenience

The good: Hot wallets offer a high degree of flexibility and convenience. Yes, this is true and often crypto traders and others who make many transactions with digital assets use hot wallets without issues. This is particularly true with exchange wallets and the browser wallets used prolifically in DeFi.

The bad: The trade-off is a higher risk compared with cold wallets. But frankly, degens and other crypto traders are more comfortable with risk to begin with. As an average hodler, NFT enthusiast, or crypto accumulator, you may have a different appetite for risk. 

The ugly: Remember, while hot wallets offer ease of access and convenience, users must practice heightened vigilance about security measures and be aware of the associated risks, especially with hot wallets that generate the private keys from a centralized source. Always stay informed about the latest security best practices in the crypto space.

Hot wallet vs. cold wallet: What’s it going to be?

The reality is, if you’re in the highly innovative crypto space, you will likely have a myriad of wallets. Once you’ve tried a crypto wallet of any kind and made a few transactions, it will be hard as hell to be satisfied making a transaction using banking software. And you’ll want to try all the latest crypto platforms and applications as development continues.

A few rules of thumb:

1. Use a hot wallet for frequent transactions and conveniences, but be extra vigilant of overall device and internet security.
2. Use a cold wallet for storing crypto for longer durations - but don’t set it and forget it! Remember, when using cold storage, you may need to periodically update your cold wallet or device. Plus, you'll need to personally secure your private keys since they are not available online.
3. If you want the best of both worlds - convenience and a high level of security - go with Gridlock Wallet. 

With a network of Guardians and Partner Guardians making up your social recovery network, and with a process of distributed key generation, Gridlock brings the hot wallet into the age of crypto security.

Download Gridlock today.

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Written by Mason Winsed

Mason Winsed simplifies blockchain for the people. With a comp-sci background and a passion for crypto safety, he's your go-to for straight-forward crypto wisdom. In his off time, he's coding or gaming. Join Mason for a no-nonsense crypto talk.