Crypto wallets: what’s the difference between hot and cold wallets?

When storing your crypto, you want to choose a wallet suitable for your needs — balanced between functionality and security for keeping your funds safe and accessible.

Hot wallets

Hot wallets are the simplest self-custody option you can find in crypto. Simply put, a hot wallet is an online wallet you can access instantly — be it a browser extension, or desktop and/or mobile application. 

The main benefit of a hot wallet is the easiness of access. As they are always online, you do not need anything else apart from working the internet to make a transaction and trade or transfer funds anywhere you want. However, the main benefit acts as a double-edged sword opening exploit pathways — malware, software failure, a remote takeover of your computer, hijacking, losing access and so on. 

Hot wallets can be compared to analog wallets; and as in everyday life, we do not recommend storing large amounts in a hot wallet — it’s the same as carrying a large amount of cash in your pocket. It would be wiser to use a cold wallet for storage and different hot wallets for transfers or trading.

Cold wallets

Generally, cold (offline) crypto storage is considered the most secure solution to keep your crypto safe. Essentially, the offline nature of cold wallets provides a safe storage for your private keys,  be it on a hardware wallet (usb-like device), written on a piece of paper or just memorised. 

While a paper wallet or memorisation works as it sounds, the form of an offline device can vary — a designated computer not connected to the internet, a hardware wallet (e.g. Ledger, Trezor), and custodial cold storage on exchange. 

The main con of a cold wallet comes from its offline nature. While it keeps crypto safe and secure, it also affects the user experience as interaction with your funds will require additional time and effort as you need to have your device on hand and connect it to the internet. Another point to bear in mind is that hardware wallet security comes with a cost — they usually cost between $50 to $200.

What wallet to choose?

Let’s sum up pros and cons of hot and cold wallets.

Hot wallets:
Simple to use on the go — be it a smartphone or laptop, you only need internet access
   - Less secure due to online nature, not recommended for large sums

Cold wallets:
High security, considered one of the safest way to store crypto
   - Complicated user experience die to offline nature, need to have cold wallet device on hand and connect it to the internet

By the end of the day, there are various factors to consider when choosing between hot and cold storage wallet. Many people use a combination of both — storing large sums on cold wallet while using hot wallets to trade or transfer funds. Generally, security experts recommend cold storage alongside other security measures (e.g. using risk management platform like Apostro to keep track of dApps in use) for the safe experience.