What’s the difference between a hot wallet and a cold wallet?

SideKick Finance
3 min readApr 26, 2023

If you’re new to the world of cryptocurrency and Web3, you may have come across the terms “cold wallet” and “hot wallet” in discussions about securing your digital assets. But what do these terms mean, and which type of wallet is right for you?

In this article, we’ll break down the differences between cold and hot wallets, and discuss the benefits of each. This isn’t financial advice and we recommend that you carry out thorough research to find out the best options for you personally.

What is a Hot Wallet?

A hot wallet is a digital wallet that is connected to the internet, typically through a website or an app. It allows you to access your cryptocurrency quickly and easily, making it convenient for everyday use, such as making purchases or trading on exchanges. Hot wallets are commonly used for day-to-day transactions and are often provided by cryptocurrency exchanges or online platforms.

There are a couple of benefits to using a hot wallet:

Convenience — They’re easy to set up and use, and allow you to access your cryptocurrency for transactions or trading quickly.

Accessibility — They’re typically provided by cryptocurrency exchanges or online platforms, making them widely available and accessible for users.

However, hot wallets are also more susceptible to security risks compared to cold wallets, as they’re constantly connected to the internet. Hackers may target hot wallets, attempting to gain unauthorized access and steal funds. This is why it’s important to exercise caution and implement proper security measures when using a hot wallet.

What is a Cold Wallet?

A cold wallet, typically known as a hard wallet, is a digital wallet that isn’t connected to the internet. It provides an added layer of security as it keeps your private keys offline, away from potential online threats.

A hardware wallet is a physical device, similar to a USB stick, that stores your cryptocurrency offline. It typically requires a PIN or password for access, and transactions need to be confirmed on the device itself. Hardware wallets are considered one of the most secure options for storing cryptocurrency, as they are not vulnerable to online attacks.

One of the main benefits of cold wallers is that they provide additional security measures, including:

Security — Your private keys are kept offline, protecting them from potential online threats such as hacking or phishing attacks. This makes them highly secure and suitable for storing larger amounts of cryptocurrency or long-term holdings.

Control — They give you full control over your private keys, which are essential for accessing and managing your cryptocurrency. You’re not reliant on a third-party service or platform, providing you with greater ownership and autonomy.

Privacy — Cold wallets offer a higher level of privacy, as they’re not connected to the internet and don’t leave a digital footprint. This can be advantageous for users who prioritize privacy and security — which most people in crypto do!

So, Which Wallet is Right for You?

The choice between a cold wallet and a hot wallet depends on your needs, preferences, and level of comfort with security measures.

If you plan to use your cryptocurrency for everyday transactions or trading actively, a hot wallet may be more suitable for its convenience and accessibility. However, if you prioritize security and control over your digital assets, a cold wallet, such as a hardware wallet or a paper wallet, maybe a better option.

Many people will choose to use both types of wallets simultaneously but keep larger amounts safe in the cold wallet, whilst having smaller amounts easily available in their hot wallet.

We hope this blog post helps to make navigating the world of Web3 a bit easier! We write weekly blogs to help unpick topics in Web3 and cryptocurrency, so if you want to learn more, please give us a follow on our socials, join our community, or sign up for our weekly newsletter.

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SideKick Finance

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