04.11.2022 Crypto Basics By George Gus

Hot and cold cryptocurrency wallets

Centralized vs decentralized crypto wallets

Cryptocurrency transactions are impossible without a special wallet. Whether you plan to use bitcoin, litecoin, or any other electronic currency, you first need to create a cold or hot cryptocurrency wallet. To understand which option is right for you, Merehead experts will help you understand their features.

What is the difference between a hot wallet and a cold one?

If you are just planning to get into cryptocurrency, one of the most important issues that need to be addressed is the safe storage of electronic funds. To do this, you will need a crypto wallet, which can be hot or cold. Investors often use both types of wallets for cryptocurrency transactions.

Hot Wallet is a hot cryptocurrency wallet that has a permanent internet connection. They are mobile, desktop or can work directly from the browser. They allow you to instantly buy or sell coins and tokens without the need for additional settings.

Cold Storage is a cold wallet that does not have a permanent internet connection. Connection to the network is carried out only for a few seconds at the time of the direct transaction. It involves storing the currency offline under the protection of a reliable personal key.

Features of cryptocurrency wallets

Cold and hot crypto wallets have their own advantages and disadvantages, as well as different use cases. We have prepared for you a basic list of their features. This will allow you to make an informed decision about which cryptocurrency wallet to create – hot and cold. If you use cryptocurrency for different purposes, you may need both options at once.

Pros of cold wallets:

  • The ability to create backups;
  • The maximum level of protection against hacking;
  • Suitable for storing large amounts.

Pros of hot wallets:

  • Fast transactions;
  • Support a large number of cryptocurrencies;
  • Ideal for beginner miners who do not have large amounts.

The main disadvantage of a hot wallet is that it does not have as high a level of protection as a cold one. Therefore, a hot wallet is used for fast transactions with small amounts of cryptocurrency.

Cold is chosen by investors for storing large amounts. Cold Storage is more often presented in hardware form (a hard drive for a computer or a separate device that stores all the information). It is difficult to carry out transactions quickly, taking into account the peculiarities of use, so the option is ideal for long-term secure storage of cryptocurrency.

How to Create a Hot Cryptocurrency Wallet

Hot Wallet is any online service that offers cryptocurrency storage services. You can create a hot wallet both on the exchange and on a specialized service that provides only a wallet.

The most convenient option is a crypto exchange, which provides the entire necessary set of tools for everyday operations with cryptocurrencies.

How to Create a Cold Cryptocurrency Wallet

Experts consider hardware wallets to be the most secure way to store cryptocurrency. There has not been a single case of theft of funds from such a wallet. The program and keys are contained on an electronic device that is connected to the computer only at the time of use. If you lose your device, you can access the funds by purchasing the same device, provided that you remember the password and passphrase. Otherwise, it is almost impossible to restore access.

What wallet to choose?

Most often, we take a small wallet with some money with us to the store, and we keep large amounts of funds in bank accounts or in safes, so as not to worry about their safety.

The same is true with cryptocurrency wallets. Cold ones are needed to safely store a large number of coins, and hot ones are needed for frequent transactions. Therefore, we believe that both types of wallets should be used.

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