Whether you’re new to the world of crypto, or you’re familiar already with trading and investing, it’s never a bad thing to learn about the different ways of storing it. Whilst there are two main types of wallets, hot and cold, that you might already know a little about, we’re going to take a more in-depth look at the kinds of benefits and drawbacks that these types of wallets have. There are also subcategories within both hot and cold wallets, that are useful to know about for those with more specific needs. So, if you’re not quite sure how to store your crypto, or are thinking about changing things up, this is our guide.
An Introduction to Hot Wallets
Hot wallets are the most popular type of crypto wallet because they’re connected to the internet which makes them useful for people who actively trade or want to use their crypto for other online activities. For example, those looking for wallets for crypto gambling usage will certainly want to choose a hot wallet, as will those who are interested in play-to-earn games. Hot wallets are the less secure option as they are open to interference from malware and viruses, but they’re the only way to instantly access your cryptocurrency online. With that said, hot wallets can still have excellent security, you just need to be sensible about the provider that you choose.
The Basics of Cold Wallets
On the other side of the coin, cold wallets are offline storage facilities for cryptocurrency that can’t be accessed via the internet. This makes them incredibly safe, as they’re impenetrable when it comes to viruses or malware. They’re best suited to people who want to buy a relatively large amount of crypto and save it as a long-term investment. This is because they aren’t easy to access, meaning they’re not well suited to short-term trading and certainly not to NFT gaming, or casino use. Some cold wallets are paper-based, and others are hardware-based, we’re going to take a closer look at both now.
Paper vs Hardware Cold Wallets
Most people who use cold wallets will have a hardware-based wallet. These tend to be on a USB stick or an external hard drive and are a super secure way of storing your private keys. You can still make online transactions using these cold wallets, but it is more time-consuming than with a hot wallet. The big benefit to these hardware storage wallets is that they’re incredibly secure and can hold large amounts of cryptocurrency. Your risk of losing any cryptocurrency is infinitesimally small, as only someone with direct access to your physical drive, as well as your passwords, could possibly hack your wallet. Whilst this is a very popular choice of crypto wallet, there is one major drawback, they can be prohibitively expensive. An online wallet will set you back around $10, whereas a hardware wallet is regularly more than $150. If you’re a serious long-term investor then this could be a worthwhile purchase, but the average user probably won’t benefit from one.
Paper wallets are old school and very rarely used. These have security benefits about hacking, malware, and viruses, but because they’re literally written down on paper, they’re quite easily compromised if anyone ever gets access to your physical files. Your keys are stored entirely offline with this method which means that you can’t make online transactions. Furthermore, if you lose your key then you’ll find it impossible to access your money. Adding all these factors together, it’s easy to see why paper wallets aren’t so popular.
Desktop, Mobile and Online Hot Wallets
The remaining options are all hot wallets, perfect for on-the-go usage and speedy transactions. The two most popular types of crypto wallets are Mobile and Online wallets. These wallets work either via app or via your browser and allow you instant direct access to your wallet, as well as compatibility with the sites that you might like to use them on. This means that you can seamlessly pay with crypto, or trade, without having to send funds via paper or plug in a hard drive. The concern with web wallets is that your password is stored on the provider of the wallet’s server, which can be disastrous if there’s a data leak, or a successful hack. With mobile wallets, the major downside is that if you lose your phone and it isn’t backed up, you might also lose access to your cryptocurrency.
To mitigate the downsides of mobile and online wallets, some people use a desktop wallet. This is generally slightly more expensive, though more affordable than a hardware wallet. In this method, you can still have your wallet connected to the internet, but you’re directly in charge of your passwords, meaning that if a server is compromised, your crypto is still safe. For us, the extra security of a desktop wallet makes this the obvious choice.