The first step when getting into Bitcoin is to get a wallet, but there’s so many types! Which one do you choose? Which one is the safest? Which is the most private? And how are cryptocurrency hot wallets different from cold wallets? Let’s have a look.
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Contents
What Is A Bitcoin Wallet?
A Bitcoin wallet is simply software that:
- Generates and manages your Private Keys, which gives you access to spend your bitcoins
- Generates and manages your Bitcoin Addresses, so you can receive bitcoins
- Creates and broadcasts transactions to the Bitcoin network so you can spend your bitcoins
They come in many shapes and sizes such as software wallets (exchange, web, desktop or mobile), hardware wallets (cold, air gaped, USB) and multisig wallets. Today though we’ll specifically be looking at a hot wallet vs cold wallet comparison and why you might chose one over the other.
What Is A Hot Wallet?
A hot wallet is a software program that runs on any computer, phone or exchange and that stores your private keys in the software program itself, meaning it and your keys are always connected to the internet.
They can be custodial or non-custodial and most Bitcoin wallet software out there is a hot wallet. As the private keys can be accessed via the internet, they are highly vulnerable to malware and hackers. It is not recommended to keep large amounts of funds in hot wallets.
What Is A Cold Wallet?
A cold wallet is a software program that runs on any computer, phone or exchange and that stores your private keys in a separate, offline hardware wallet device, meaning it and your keys are never connected to the internet.
They can be custodial or non-custodial and as they store private keys physically separate from the software on the hardware wallet, they are highly resistant to malware and hackers. The term “cold storage” or “deep cold storage” relates specifically to the fact that your private and public keys that make up your cryptocurrency wallet aren’t connected to the internet.
A wallet is considered deep cold storage when the cold wallet device (and thus crypto keys) are kept in a highly secure, locked away place that takes a lot of time and effort to access such as in an offsite safe or in a different city entirely. This is typically used for funds in long term storage.
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