Home » Hot vs. Cold Storage – Where to Store Bitcoin and Altcoins
If you’ve taken that leap, you need a safe place to store it. Your options include hot and cold wallets, but what to choose?
In crypto, we often talk about electronic wallets, but what they are and how they work is still unclear. Crypto wallets are vital tools for purchasing and trading digital currencies. Users need them to deposit virtual coins, as well as to validate and secure transaction information. These wallets keep cryptocurrencies safe from hackers, but they don’t “hold” them, as in the case of old-fashioned physical wallets. Instead, digital wallets prove your asset ownership with the help of some private keys that lets only the proprietor access them. Whereas a cryptocurrency exchange is a viable option for many who run away from the responsibility of managing a passkey, storing assets in hardware or a non-custodial wallet is safer, as no third party is involved.
Below, we’ll talk about the pluses and minuses of each of these wallets so that you can make an informed decision.
Hot wallets include everything from desktop and mobile wallets to web-based wallets. Simply put, they’re wallets that operate on Internet-based devices. This storage type has long been popular among users due to its practicability. Individuals who use hot wallets can rapidly access their digital assets, as well as have their coins rapidly delivered to their online storage. That’s because hot wallets are designed with ease of use in mind. Besides, the process happens in seconds whenever you make a cryptocurrency transaction, as there’s no need to switch from offline to online. In the case of cold wallets, things wouldn’t be that convenient. You would need a computer or other Internet-based device to connect your hardware wallet, then transfer the necessary amount of virtual currency to a hot wallet, and only then make the purchase. Thus, the most significant advantage of this type of storage is that it allows for straightforward, hassle-free transactions.
Nonetheless, hot wallets have some minuses not to be ignored. Since both the public and private keys are kept on the Internet, it would become easier for hackers to compromise your account and steal your funds. Some crypto exchanges provide customers with this type of storage, often without SIPC or FDIC insurance. In this case, it would be wise to refuse and look for a safer place to store your cryptocurrencies. However, if you’re mindful of guarding your personal data and building hard-to-guess passkeys, this information is unlikely to be stolen.
Generally, it’s recommended to keep only little amounts of virtual coins in hot wallets and store a larger number of assets in a hardware wallet. Whereas hot wallets are ideal for those with a bunch of transactions with exchanges or individuals, cold wallets are the perfect option for storing the bulk of your Bitcoin or altcoins.
Apart from watching your amounts stored, you can also back up and encrypt your online wallet to keep it extra safe.
If you’ve just checked Bitcoin price USD and decided to buy the asset, then it would be helpful to have a top-notch storage option in place. Security is more of an obligation than a priority for such a crypto giant. So, consider cold wallets your first choice when it comes to storing Bitcoin or any altcoins. Like hot wallets, cold wallets imply private and public keys, but the private keys in the latter case aren’t saved on the Internet, so no one can access them unless they get their hands on the USB device that keeps the passkeys in safety. In other words, this type of storage has nothing to do with an Internet connection, so it involves a far lesser risk of being jeopardized. These wallets usually come with software that functions in tandem so that anyone owning some form of crypto can access their portfolio without endangering their passkeys.
Cold wallets are typically associated with hardware wallets, which include everything from small to medium-sized USBs and physical Bitcoins to paper wallets. A secondary computer is also a potential option for storing valuable assets, but it’s somewhat old-fashioned since many hardware storage solutions are available on trustworthy exchanges.
Paper wallets are considered the safest method to store Bitcoin and altcoins outside the online environment. This storage option involves delivering a cold wallet from certain web pages, which then generates private and public keys that are to be printed out on a piece of paper. Only those owning these papers are thus able to access the coins in these addresses, so the risk of theft is significantly reduced. Generally, people that want to be extra safe veneer these pieces of paper and stock them in a safe in their house or secure deposit boxes at their bank. There is only the blockchain and a piece of paper – no equivalent UI (user interface).
Cold wallets seem immune to compromise. Even if a malicious actor connects the USB via Bluetooth, it would be impossible to steal anything from you since transaction signing is required. This signature is made in-device and only consequently communicated to the network through your device’s Internet connection.
As for minuses, the only thing to point out is that cold wallets are less convenient than hot wallets. Transactions usually imply way more time, as they are moved from online to offline and need a digital signature to be processed.
A Combination of Both
You don’t have to stick only to a hot or cold wallet. You can combine the safety and peace of mind of a hardware wallet with the convenience and easiness of a hot wallet, especially if you have a diverse portfolio. Consider storing cryptocurrency you often use for transactions in a hot wallet, but be mindful of the amount held there and use cold wallets for large amounts of cryptocurrency you plan to invest for the long term. Some people even combine various types of wallets, such as mobile hot wallets, exchange account hot wallets, and hardware wallets, and use them for different purposes.
As you can see, you have plenty to choose from. What type of crypto storage you pick is only up to you.