Beginner’s Guide to Crypto Hot and Cold Wallet

Tio • July 12, 2024

HUB-Crypto-Hot-Wallet-vs.-Cold-Wallet_-Beginners-Guide

A quick web search on “how to start investing in crypto” will show you that one of the first things you’ll need is a crypto wallet, essentially a place to securely store your cryptocurrencies.

You’ll also quickly learn that crypto wallets come in all shapes and sizes. The most common difference between crypto wallets are the distinction between hot wallets and cold wallets, which basically boils down to the storage method; but more on that later.

That being said, a common question we get asked is which one is better – hot wallet or cold wallet?

Well, there’s no definite answer for this. Only you can decide which one is right for you. In this article, we’ll explore hot vs cold wallets and give some insight into both.

Key Takeaways

Cryptocurrencies are stored in crypto wallets that allow the user to access and manage their coins.
Hot wallets prioritise accessibility, convenience, and cross-platform support.
Cold wallets are designed for long-term storage with enhanced security measures for maximum protection.

What are crypto wallets?

Before we get started, what is actually a crypto wallet?

Simply put, a crypto wallet is a place to store your cryptocurrencies. It’s like a regular wallet that holds your cash. But with crypto, it’s digital and you have extra privacy keys.

Blue crypto wallet with Bitcoins. — Think of crypto wallets like a normal wallet, albeit more secure and only stores your digital assets.

You can think of a crypto wallet as the bank account where you keep your money. And just like when you deposit cash into your bank account, you can transfer cryptocurrency into your crypto wallet.

When it comes to storing your digital coins, there are many different types of wallets available. Some of them are hot wallets and cold wallets.

Speaking of wallets – check out our quick YouTube video for an intro to wallets!

New to crypto? Start with our 101 guide on cryptocurrencies.

What is a crypto hot wallet?

Crypto hot wallets are a type of crypto wallets that require an active internet connection in order to access its functions – hence the term hot, referring to its active connection to the internet.

Hot wallets are the most popular type of crypto wallets due to their user-friendly design, accessibility, and ease of use.

It’s also worth mentioning that there are two types of hot wallets, a custodial wallet and non-custodial wallet:

Custodial hot wallets: involve storing your cryptocurrencies with a third party, or a custodian, usually a crypto exchange who will then manage and be responsible for its storage. Examples: Coinbase, Binance, etc.
Non-custodial hot wallets: you are the sole owner, or custodian of your crypto assets. This means you hold both the public and private keys to your assets, providing you the most decentralised way of owning your digital assets.

Crypto hot wallet on a tablet. — Hot wallets prioritise convenience, accessibility, and ease of use across multiple platforms,

The ease of use and accessibility of hot wallets makes them excellent options for those just wanting to start with cryptocurrencies. If you’ve ever used mobile banking apps, you’ll feel right at home with hot wallets.

Additionally, many hot wallets such as Metamask and Trust Wallet, also have integration with NFT marketplaces, making it easy for those active in the NFT space.

What is a crypto cold wallet?

Cold wallets store your crypto assets in a secure, offline environment, hence the term cold storage. These wallets are often referred to as hardware wallets and comes in the form a small device like a USB drive, which you can then plug into your computer whenever you need to access your assets.

Ledger Nano X placed on the ground backdropped by black sand and stones to illustrate how to set up the ledger nano x — Ledger’s line of cold wallets – designed for enhanced security and long-term storage.

Cold wallets prioritise safety and protection above all else. Making them the ideal storage solution for long-term holding or those who have large volumes and want the highest protection possible for their assets.

The setup process requires additional steps to ensure the wallet is properly secured, and may involve using the software that comes with the device. While they do take a bit of learning curve to use, the protection that they provide is the highest possible in the industry.

Another important note to keep in mind is that cold wallets by default non-custodial, meaning you are the sole owner, or custodian of your assets. Therefore, it is your responsibility to secure and backup your password, seed phrases, and credentials.

Hot wallets vs. cold wallets: Which one to pick?

Now that you know the distinction between hot and cold wallets, which one is right for you?

The answer ultimately lies with your preference and use cases. Below are some additional contextual use cases for you to consider when choosing between hot and cold wallets.

Hot wallets

Crypto hot wallets are generally favored by beginners due to their user-friendly interface, ease of use, accessibility, and integration with your existing devices. Some hot wallets also have the added functionality of integrating with existing DeFi ecosystems, NFT marketplaces, DEXes, and more.

Screenshot of Easy Crypto Wallet homepage

The Easy Crypto Wallet is our very own, locally designed self-custody hot wallet that is built to simplify the crypto experience for all crypto users.

Easy Crypto Wallet features:

The Easy Crypto Wallet is a non-custodial wallet with encrypted cloud-based backups to securely protect your assets.
Features the latest MPC (Multi-Party Computation) signing for authenticating transactions.
Manage multiple wallets and addresses in one simple app. Customise your wallet with separate accounts and individual addresses to enhance your on-chain privacy and suit your needs.

The EC Wallet is combines the autonomy of using a self-custody wallet, whilst also incorporating the protection, security, and privacy of cold wallets – making it the best of both worlds.

Buy, sell, and manage cryptocurrencies the easy way with Easy Crypto Wallet: Learn more.

In terms of cons, hot wallets are considered to be less secure compared to cold wallets, and in some cases also the limitation of control over your assets should you opt for centralised wallet exchanges, such as Binance, Coinbase, etc.

However, these limitations are largely mitigated by the Easy Crypto Wallet, as we designed the wallet to be non-custodial, meaning you hold true ownership and control over your crypto assets. And also, enhanced with MPC, and encrypted cloud-based back ups.

For those opting for other options for comparison can also check out:

Cold wallets

Crypto cold wallets by design prioritise security and protection of your assets above all else. That means a bit of compromise in terms of accessibility and usability, in exchange for arguably the most secure storage option for your crypto assets.

Cold wallets store your private keys in a secure offline environment, disconnected from the internet, hence the term cold wallet. To access your assets you’ll also need to setup layers of security credentials that is usually facilitated by a program that comes with your cold wallet.

Ledger Nano S receiving new transaction. — The Ledger Nano S provides enhanced security for your digital crypto assets.

Examples of cold wallets are the Trezor Model T and Ledger’s Nano X and Nano S. Both of which employ industry-leading encryption technology and a variety of security measures to protect your assets.

Keep in mind that while cold wallets are by far the most secure way to store cryptocurrencies, it also emphasizes the responsibility on the user to safekeep and remember the login credentials.

Important: Be sure to back up and secure the credentials of your cold wallets and non-custodial wallets. Your seed phrase and/password is the only way to access your wallet.

Here are some additional detail on the differences between hot and cold crypto wallets.

	Hot Wallet	Cold Wallet
Price	No fees are usually charged, but you may have to deposit a certain amount before you can start buying cryptocurrencies.	You’ll need to buy an external device. Prices range from $50 to $250, depending on what devices you need.
Better For	People who are just starting to invest in cryptocurrency and want to use an easy-to-use platform.	People who need to store their crypto for a long time.
Security	Average, they need to be connected to the internet, which can potentially be hacked.	Excellent. They can’t be accessed online, but they must be handled carefully to avoid damage, loss or theft.
Accesibility	They are easily accessible on the computer or phone once you connect them to the internet.	Average, you will need to take one extra step to connect your hot wallet.

More on safety: Crypto Hot & Cold Wallet Security Tips.

Takeaways

Whether you’re new to the crypto space, or someone with prior investing or crypto experience there is no right or wrong answer for you choice of crypto wallets. After all, we all have our own purpose and intention for investing in crypto.

Illustration of two hands transacting NFTs. — Many hot wallets have extensive integrations with NFT marketplaces, payment gateways, and more.

If you’re someone who is just looking to get started with cryptocurrencies, or maybe you want to look into buying or creating NFTs, then the Easy Crypto Wallet is ideal due to its ease of use.

For more articles related to cryptocurrencies and investment strategies, visit our hub.

Published on July 12, 2024

Last updated on September 18, 2024

Tio

Tio is the Content Marketing Lead for Easy Crypto, where he spearheads the creation and strategy of engaging and informative content for the platform. With a passion for simplifying complex topics, Tio brings a wealth of knowledge in cryptocurrency and digital finance to the Easy Crypto community. His insightful articles and guides empower users to navigate the world of digital assets with confidence and ease.