Hot and Cold Wallets – Their Functions and Safety
Cryptocurrency, especially the first bitcoin, is a hugely used investment asset that came into the mainstream after starting to get some popularity due to its value growth. The new investment asset came into existence as a trading site in 2009 and, in 2021 reached its highest point of valuation now that over $65,000. As a result, its popularity for investment crossed the maximum limit.
But, the volatile asset doesn’t seem like very easy to invest in, and for that reason, risk control measures are being taken by the investors. One such measure is using a crypto wallet. It is a convenient method to trade or invest bitcoin from an exchange account to do it with a crypto wallet, but at the same time, it secures your bitcoin holdings too.
The wallet categories – hot & cold wallet: Cryptocurrency wallets are generally called digital wallets. It is because of cryptocurrency. It only has a digital appearance and no physical form. You can’t store them in a physical wallet, unlike traditional money. So, you have to store them digitally too.
However, digital wallets are categorized mainly in two forms – hot wallets and cold wallets. The forms differ due to several reasons that are described below.
The internet powers a hot wallet. Any wallet connected to the internet can be called a hot wallet. The wallets keep private or public keys that are the access to your bitcoin holdings, and you use them at the time of bitcoin transactions.
As the word ‘hot’ sometimes suggests anything sensational or vulnerable, just like these hot wallets are named hot because they are vulnerable and sensitive to online fraud attacks. That’s why these wallets are prone to be scammed.
Benefits: Hot wallets are very much convenient. There are numerous of them that you can download from an online website and install on your computer or mobile. You can use them in the form of a desktop wallet, mobile wallet, or web wallet.
You can use them any time because they are always connected to the internet, although you can unplug the connection when you are not doing any transaction. Because of its convenience, the most frequently used keys are stored in this kind of wallet.
Drawbacks: The only drawback that a hot wallet might have is its possibility of hacking. It is connected to the internet directly, and in the modern era of fraudulent activities, your bitcoins might not be that much safe with a hot wallet.
A cold wallet operates offline. It is more like a device where the keys are stored, and you can keep the device wherever you want. When you want to make any transactions, you need to connect the device with your PC but not necessarily with the internet.
By their nature of less internet connectivity, cold wallets are less prone to online hacking. So they are a more preferred and safe way to store private-public keys.
Benefits: Cold storage wallets are not always connected or not at any time connected to the internet directly. So they are not capable of hacking by online scammers.
One more thing is that as they are like small devices, they can be carried anywhere and stored anywhere. So they can be more safely stored.
Drawbacks: Cold wallets don’t have any such drawbacks, but there is a chance of losing them as they are small devices and not always attached to the computer. But, you lose complete access to your bitcoin or crypto holdings if you lose them.
Another thing is they can be damaged; if they are, the same possibility is there to not having any access to the currency. And, bitcoin, once lost, cannot be retrieved.
Both hot and cold wallets have the same functions, but they are different in per the advantages and disadvantages they give. So, when doing bitcoin trading or investment, choose your bitcoin wallet wisely to secure the currencies you have. However, if you are interested in other types of investment, you can invest in the Chinese currency Yuan, which is giving a good amount of return nowadays. For that, you can visit to start trading in Chinese cryptocurrency.