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Self-security is paramount in the crypto and NFT space. So what is the difference between a hot and cold wallet? Let’s find out.
If you are new to the crypto or NFT space, you may have seen or heard the terms “hot” and “cold” wallet thrown around. As a newcomer, this industry is confusing as hell; and I wouldn’t be surprised if you put no thought or research into it or why it is important.
If you don’t read anything else past this current sentence, let me give you some quick advice, invest in a damn cold wallet.
I cannot even count how many times I’ve seen someone complain about getting scammed or their wallets’ drained because of their lack of a cold wallet. It is terrible to see people lose thousands of dollars by not investing in their own security.
DISCLAIMER: Bad practices with a cold wallet can still risk compromising your assets!
Let’s explore the differences between a hot and a cold wallet and the pros and cons of each.
Table of Contents
What is a "Hot Wallet"?
To put it in simple terms, a hot wallet (or a “software wallet”) is a wallet that is connected to the internet. The private keys are stored online and in your browser which means they are more easily hackable.
What is a private key?
What are examples of Hot Wallets?
There are many hot wallets for you to choose from, and it’s often the first wallet you will setup. Some popular options include:
- Metamask
- Rainbow Wallet
- Phantom (Solana)
- Trust Wallet
Pros vs Cons of a Hot Wallet
Let’s explore the main pros and cons of hot wallets now.
Pros:
- Free and convenient
- Very quick and easy to setup
- Many options to choose from
- Great for small transactions
- Safer than storing assets on exchanges
Cons:
- Connected to the internet
- Public and private keys stored online
- Vulnerable to potential hacks
- Relies heavily on trader awareness
- Limited cryptocurrency storage options
As you can see, most of the cons are security-related issues. With that being said, most hot wallets DO come with great security features like two-factor authentication (2FA), IP whitelisting, secure passwords, and more.
The core issue remains that it’s connected to the internet and your private and public keys are stored online, so by default, it is more vulnerable to hackers.
You can take all the security measures you want and still; one innocent moment of irresponsibility or haste and you could potentially lose everything.
Hot wallets are great for their convenience in conjunction with cold wallets. Transacting small amounts or only the required amounts for a transaction is advised when using hot wallets.
Many people will store the bulk of their assets in a cold wallet, and transfer assets or funds to their hot wallet when making transactions or signing messages.
What is a "Cold Wallet"?
A cold wallet (or hardware wallet) is a wallet that stores your cryptocurrencies and NFTs and is not connected to the internet. Your private and public keys are created and securely stored offline as well.
What are some examples of Cold Wallets?
- Ledger *Affiliate Link
- Trezor
- Paper Wallet
Ledger Hardware Wallets
I can fully recommend the Ledger Nano S or X from personal experience. Ledger combines a sleek, lightweight device with intuitive UI / UX and a great desktop app Ledger Live. I’ve never had an issue.
It may be cumbersome to set-up a hardware wallet for the first time, but you will learn your way around it in a breeze and will thank yourself later.
You can check out the Ledger Nano S or X hardware wallets here *.
Pros and Cons of a Cold Wallet
Now let’s take a look at the pros and cons of a cold wallet.
Pros:
- Not connected to the internet
- Public and private keys stored offline
- Most secure method of storing assets
- Great for storing large holdings
- Feels pretty cool to use
Cons:
- Can be expensive
- Cumbersome to setup at first
- Mostly physical devices
The main drawbacks for cold wallets, specifically hardware wallets, are that they can be expensive (~$100) and are not as convenient as hot wallets. They have a more cumbersome set-up process, however it really isn’t too bad with provided help manuals and other resources.
In my opinion, it is never worth compromising security for convenience. Cold wallets are absolutely worth the investment, as they provide the strongest security over your assets.
However, you still NEED to adopt good habits when handling your assets, even with a cold wallet. Making sure to do your due diligence and only signing transactions you trust, and NEVER giving out your information – especially your private keys.
No piece of software or hardware can protect someone against themselves.
They feel cool to use.
Not gonna lie, hardware wallets also feel kind of badass to use. To me at least, it almost feels like you’re the hacker when you use a hardware wallet and learning your way around it.
Setting up a hardware wallet for the first time can be a bit of a process, but it does immerse yourself into another level of Web3 technology that you couldn’t get otherwise. Setting up your device, installing the apps you want, and taking ownership of your assets provides a level of immersion you just don’t get with software wallets.
Making a transaction isn’t just a simple browser popup. You have to go get your device, plug it in (or use Bluetooth), enter your pin code, navigate to the required app, confirm the message on your device and watch the magic unfold.
It makes it feel like YOU are the hacker boi.
Conclusion
You’ve learned some of the differences between hot wallets vs cold wallets – or software wallets and hardware wallets. It can all be boiled down to convenience vs security.
In my opinion, security should never be compromised for convenience. Instead, use a combination of both hot and cold wallets. If you only want to use one, then it’s definitely advised to get a cold wallet.
Store the majority of your assets on a cold wallet and then transfer the required funds to hot wallets for transacting, minting, etc. A cold wallet is designed to be fully offline, and it is best practice to not mint NFTs with your cold wallet.
Invest in your Web3 security with the recommended Ledger Nano* wallet.
Official Links
- Get Your Ledger Wallet: https://allyourloot.com/ledger *Affiliate link
- Trezor Wallet: https://trezor.io/
- How To Setup A Rainbow Wallet: https://allyourloot.com/how-to-setup-a-rainbow-wallet-2023/
*Contains affiliate link, see Affiliate Disclaimer
*Contains affiliate link, see Affiliate Disclaimer
*Contains affiliate link, see Affiliate Disclaimer
