The digital currency has risen to prominence in the last decade and has become the go-to currency for many who want to avoid physical currency. Digital currency comes with its own set of advantages, but just like physical currency, it also needs to be stored at a safe and convenient place. This place is not like the physical wallet but a digital one, which is a computer program that holds the public and private pair of cryptographic keys, required to send or receive payments. These keys can be stored either in an offline device or within a service that has internet access. The method of storage distinguishes between the two types of wallets- hot and cold wallets.
Cryptocurrencies can be stored in any of the two wallets and each has its pros and cons, which one can choose according to their needs, based on considerations of security and convenience. “Cold storage is an offline wallet, a USB device that is not connected to the internet, which helps to protect it from unauthorized access, cyber hacks, and other vulnerabilities that are aplenty on the web.” Such wallets are usually characterized by a complex interface and are apparently inconvenient for newbies. Although considering the safety factor, cold wallets are the best options as no hacker can break into a physical device or gain unauthorized access into a device under one’s control. Thus the two major benefits of cold wallets are, they are very secure for storage of a large amount of cryptocurrencies for a long period, as the funds are stored offline. However, this does not make it full proof as it is still vulnerable to theft, external damage, or technical errors and is inefficient and inconvenient for micropayments and regular transactions.
Cold Wallets are of two types Hardware wallets, which are physical devices like Ledger Nano S, KeepKey, Trezor, which support a wide range of cryptocurrencies. Paper Wallets need access to public and private keys for transactions, and the latter should be stored on paper than online as otherwise, it would give access to all the account information. These can be created using software programs that generate such keys randomly, after which the program can be deleted for safety. Hot wallets, on the other hand, have access to the internet and are provided free of cost by exchange platforms, mobile apps, browser extensions, desktop software, etc. The major difference with cold wallets is that they can process transactions very swiftly, which makes them user friendly and suited for everyday use. The advantages of hot wallets are thus- efficient access to one’s currencies and streamlined payment interface as applications are user friendly. For instance, if you want to trade online, Hot Wallet storage can be very useful, one can find more details about online trading through bitcoinera-review.com.
However, hot wallets are highly vulnerable to cybercrime and fraud, which may cause a permanent loss of funds, without any chance of recovery. To avoid such hacking of wallets, one needs to use a complex password with multi-factor authentication, few examples of Hot wallet are Electrum, Exodus, Metamask, Coinpayments. These wallets should be used by new users of cryptocurrencies and those who want to make regular payments and other transactions through cryptocurrencies. It is also suited for short-term cryptocurrency traders who require ease of transactions and want to access their wallets anytime, without much hassle.
A few precautions that one needs to take while using a cryptocurrency wallet are- the money should not be kept on the exchanges for very long as trading always involves risks, cold wallets should be used if one needs to store the money for long. Therefore hot or cold wallets should be set up depending on the amount of digital currencies one is planning to store, the time period for which they are to be stored and the risks one is ready to take. Your hardware wallets should always be PIN or password protected and multi-party, multi-signature, or multi-factor wallets should be used for frequent transactions. Hot wallets should primarily be used for micro-payments as they entail the higher possibility of a security breach. Thus both Hot and Cold wallets have their own benefits and disadvantages, and one should choose to keep in mind his purpose, convenience, security and other considerations.