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Cold wallet and hot wallet: What’s the difference?
In cryptocurrency, instead of decentralization and scalability, it seems like security is the top priority. Some investors prefer crypto wallets because of the high level of protection, rather than keeping tokens or coins directly on the exchange where they bought them. Due to the rapid expansion in the number of users, there is a wide range of wallet hardware to choose but generally, they are divided into 2 main types: Cold wallet and hot wallet. Let’s deep dive into its feature and learn how to distinguish them.
A cold wallet – also known as a hardware wallet – is a physical device with high security that keeps your cryptocurrency completely offline, with no continuous internet connection needed.
It only connects to the internet when you need to make a transaction. Separating money offline is the most reliable way for users to protect their funds from hacker attacks and scams. Currently, cold wallets are known as the most effective crypto protection solution. Because as long as you keep your private key and passphrase private, cold wallet will not allow hacking attacks. One more thing, make sure to buy your cold wallet directly from the manufacturer to avoid the fake device.
Hardware wallet: This is the most commonly used wallet. Hardware wallets are physical devices, often similar to a USB stick, to securely store a user’s private key. They do not require a connection to the internet, so they are not affected by viruses or malware that may be on the computer. In addition, hardware wallets also allow you to set an additional PIN or password to ensure safety, if the case is lost, it will not be able to be used by a third party.
Paper wallet: Paper wallets are the safest way to protect your cryptocurrency from computer attacks. A paper wallet is simply a piece of paper printed with a public address, private key, and QR code to facilitate transactions. Only when you own this piece of paper will you be able to access the cryptocurrency in the addresses printed on the paper. However, paper wallets are also very easily damaged, degraded or lost at the printing shop. So many people have pressed these paper wallets and stored them in their homes or even deposited them in banks.
A software wallet is another name for a hot wallet. It is an online form of digital storage that you may access from a computer or smartphone. Hot wallets are less secure from hackers than their cold wallet counterparts because of the internet connection. In addition to allowing you to retain your cryptocurrency in the exchange, some exchanges will also provide a separate hot wallet. Hot wallets are safer than storing your coins in your exchange account and can make it simple to move cryptocurrency back to an exchange to complete additional deals or cash out your holding.
Overall, for long-term investors, cold wallets are a smart choice, a safe place to protect their holdings from cyber attacks while hot wallets provide flexibility. Hopefully, you have a better understanding of hot wallets and cold wallets, thereby choosing for yourself a suitable wallet.