What is a cold wallet or hardware wallet, and how are they different from hot wallet?
If you have ever spent time reading cryptocurrency forums and discussions, you have most probably heard of cold wallets and hot wallets. Cryptocurrency enthusiasts and experts have had long debates on which wallet is better. This seems to be an ever-growing argument, one that will probably never end.
Today, I will talk to you about what cold wallets and hot wallets are? How are they different from one another? And which one should you choose?
First, let us talk about the basics, and then we will move on to the comparison:
Cold wallets are physical devices that you can buy from the market or online that you use to store and manage your cryptocurrency. While hot wallets are not physical devices but are rather digital cryptocurrency wallets. There are other wallets in the market as well. However, these two are the most commonly used.
Digital currency wallets have existed ever since the creation of Bitcoin. Hot wallets are found in two forms, online and desktop wallets. You can also download these wallets on your IOS and Android devices. Mobile hot wallets are often considered as hybrid wallets because of their mobility.
The best thing about owning a hot wallet is the fact that they are completely free and can hold all digital currencies.
First, let us discuss “the all crypto holding” factor. An ‘” ICO” is created every time a new cryptocurrency comes into the market. The ICO is only functional if there is a place to store it. People who create digital currency are usually the same people that also make a wallet to support it.
The more common cryptocurrencies like XRP, Litecoin, and Ethereum all have different digital wallets for them as well. Each wallet has its unique functions, customization, and features to choose from. Less popular or less common cryptocurrencies mostly have one wallet with basic functions such as trading, selling, and buying.
An important point for hot wallets is the fact that they can hold less common and new cryptocurrencies, while cold wallets do not offer this feature.
Another point that makes hot wallets popular is the fact that they are free to use. All you need to do is find a hot wallet that matches your needs and then register to use it. The free factor is the main reason why these wallets are so popular, especially for the new crypto users.
As I have mentioned before, cold wallets are physical, digital currency holders. Cold wallet devices are lightweight, compact, and easy to carry, so you can take your crypto wherever you need to go.
However, these wallets are not free, and they are not that cheap either. A cold wallet can set you back at least $100 or more for a more advanced device.
Another con of cold wallets is the fact that you can only store a small variety of coins. Other than OPOLO wallets, that lets you store over 109 cryptocurrencies, most cold wallets only let you store mainstream cryptocurrencies.
Why do people buy cold wallets, when hot wallets are free?
After reading the statements above, you might be wondering why anyone would buy a cold wallet, when hot wallets are free and offer more services. The answer to this question is simple, it’s the security!
I did not mention this feature above because it is so important that it deserves better representation, rather than a small explanation.
If you have been following digital currency news, you would have noticed the many stories related to cryptocurrency hacking. People have lost thousands and millions of dollars through crypto hackers.
Hot wallets are extremely vulnerable to hack attacks!
All hot wallets store your credentials on a cloud or an online server. As we already know, online servers are not that difficult to hack. You could be a victim of malicious software or a scam, and you can even just be a target to someone who knows your digital currency worth.
Even though most hot wallet websites have taken many security measures to ensure the safety of your crypto. It only takes a small loophole, such as a website update, to lose all your digital currency. This has happened before and will continue to happen in the foreseeable future.
Some websites like coinbase offer 100% insurance if you use their hot wallet. However, this is quite rare and is quite reassuring. But other websites can also scam you with the same promise.
Most hardware wallets such as OPOLO have taken such extreme security measures, even if you connect your cold wallet to a corrupt computer system. Your digital assets still cannot be hacked.
When choosing a digital currency wallet, be it hot or cold, security should be your first, second, and third priority. For that very reason, I will suggest that you choose a cold storage wallet. However, if you are completely new to the crypto scene and are not heavily investing in digital currency, you can opt for a hot wallet to learn the trade. But, once you start spending big in the world of crypto, always choose a cold wallet!