Hot wallet vs. Cold wallet: Which is better?

Hot wallet vs Cold wallet

Crypto wallets are essential to keep the keys to your digital cash safe. To choose the right wallet, you’ll have to understand the distinctions between a “hot” wallet and a “cold” one.

Both types protect your public and private keys — the cryptographically generated strings of letters and numbers that can authorize your crypto transactions. The right kind of wallet depends on how much crypto you hold, your security preferences, and how easily accessible you need your funds to be.

Deciding factors

	Hot wallet	Cold wallet
Price	These are usually free, and some pay interest on stored crypto.	These require purchasing an external device, around $50 to $250.
Better for	Hot wallets are convenient to access and use for trading.	Cold wallets are better suited for long-term storage.
The maximum number of cryptos	Most tokens are currently supported	New tokens have to wait for the manufacturer to update
Cybersecurity	Average. Because SMC can freely access after approval	Excellent. They cannot be accessed online, but they require security measures to keep them from being damaged, lost, or stolen. And most importantly, every transaction has to be confirmed manually.
Loss protection	Good. Most have recovery and backup options and can be accessed from multiple devices.	Average. Most have recovery and backup options for a lost password but not for a lost device.
Ease of transfer to exchanges	Excellent. Hot wallets are easily accessible as the wallet is already internet-connected.	Average. Cold wallets require an extra step to connect online through USB, Wi-Fi, or QR code.

Security

Winner: Cold wallets

Since most cryptocurrencies are decentralized and don’t have additional security measures that a third party like a bank would provide, it’s essential for wallets to have strong protections in place.

Cold wallets aren’t connected to the internet, so they’re less vulnerable to online hacks or theft than a hot wallet. This hardware only connects to your online account when it’s physically plugged in or using a unique QR code, so your private key never unintentionally comes into contact with an online server where it could potentially be accessed by someone else.

Most hot wallets have built-in security measures to keep your funds safe, like recovery seed phrases, but they can’t compare to the safety of fully offline cold storage.

Hot wallets can be accessed on multiple devices, so if your computer or phone is stolen, you can recover your funds through a seed phrase or other backup method. If you lose your cold wallet, you can still use a recovery phrase to access your keys, though you’ll need to purchase a new hardware device or plug the word into a compatible software wallet.

With both methods, if you lose track of your recovery seed phrase, you may lose access to your wallet permanently.

Convenience

Winner: Hot wallets

Because cold wallets live offline, they require connecting to your web-based account to access and move your funds. Hot wallets are already connected to the internet, making them much easier for regular transactions.

Conclusion

The most significant trade-off between hot and cold wallets is security and convenience. Both methods can store plenty of different currencies. Still, the proper way for you depends on whether you prioritize safety from potential online hacking or easy access to trading and staking.

For a better balance of security and convenience, you can use a combination of both wallet types, storing easy-access funds online to trade and earn interest while keeping the keys to more significant investments offline for longer-term storage. Keeping many funds in a hot wallet can make your account a thief target.

Other wallets

Custodial wallets

managed by software providers may be a good option for beginners or users looking for a more hands-off approach. These wallets allow users to store their funds directly on an exchange where they can be bought or traded—some pay crypto interest or rewards on assets that are kept on their platforms.

Manual storage

Technically, you can store your wallet keys the old-fashioned way: on a piece of paper, held in a safe, or buried in the backyard. This method keeps your funds safe from online hackers, but if your information gets lost or damaged, you’ll have no way to recover your assets.

Manual storage also makes it more challenging to move your coins online to trade or sell, unlike digital wallets — both hot and cold — which have built-in or integrated tools to help you interact with the blockchain.