If you are new to the world of cryptocurrency, you might be wondering how to self-custody your crypto in a secure and convenient way. One of the most important decisions you will have to make is choosing between a hot wallet (software wallet) and a cold wallet (hardware wallet). But what are they, and how do they differ?
In this blog post, we will explain the difference between hot and cold wallets, the advantages and disadvantages of each, and how to choose the best one for your crypto needs. We will also introduce you to Gem Wallet, a new open source crypto wallet that is built in the open with feedback from the community and values user privacy.
What is a Hot Wallet?
A hot wallet is an online wallet that is connected to the internet. It allows you to store, send, and receive cryptocurrencies easily and quickly. You can access your hot wallet from any internet-enabled device, such as your smartphone, tablet, or laptop. A software wallet (mobile/desktop/browser extension) usually stores the private key (seed phrase) in an encrypted file on the device or browser. Some hot wallets also offer backup options, such as cloud storage, to help you recover your private key in case of device loss or damage. However, these options may also expose your private key to online threats, such as hacking or phishing.
Some examples of hot wallets are Coinbase Wallet, MetaMask Extension, Trust Wallet, Exodus Wallet, Robinhood, Edge, and more. These wallets support various cryptocurrencies and tokens, such as Bitcoin Wallet, Ethereum Wallet, and more. Some of them also offer features like interest earning, staking, swapping, and trading.
A hot wallet is also known as a software wallet because it runs on software applications that you can install on your device or access through a web browser.
What is a Cold Wallet?
A cold wallet is an offline wallet that is not connected to the internet. It is a physical device that stores your private keys in a secure environment. Your private keys or seed phrase are the cryptographic codes that prove your ownership of your cryptocurrencies. Without them, you cannot access or spend your coins, which is why it’s important to follow best practices and learn how to secure your seed phrase.
Some examples of cold wallets are Ledger Nano S, Trezor One, KeepKey, BitBox02, SafePal Wallet and more. These wallets are also known as hardware wallets because they are usually shaped like USB sticks or small devices that you can plug into your computer or scan with your phone.
A cold wallet is also known as a cold storage wallet because it keeps your private keys in a cold or offline environment that is isolated from any potential threats.
Another type of cold wallet is a paper wallet. A paper wallet, usually used as BTC wallet, is simply a piece of paper that has your private key and public address printed on it. Someone would use a paper wallet if they want to store their crypto for a long time without spending it. It is also useful for giving crypto as a gift or transferring it to someone else. It’s important to create a paper wallet on a device that’s not connected to the internet because this way you can prevent any online threats from compromising your private key. By creating a paper wallet offline, you can ensure that your private key is only known to you and not exposed to anyone else.
Hot Wallet vs Cold Wallet: Pros and Cons
Both hot and cold wallets have their pros and cons. Here are some of the main factors to consider when choosing between them:
The most obvious difference between hot and cold wallets is their level of security. Cold wallets are generally more secure than hot wallets because they are immune to hacking, phishing, malware, and other online threats. They also have additional security features like PIN codes, passwords, recovery phrases, and physical buttons.
Hot wallets, on the other hand, are more vulnerable to cyberattacks because they are connected to the internet. If someone gains access to your device or your wallet account, they could potentially steal your funds. Hot wallets also depend on third-party providers who may have their own security issues or policies.
However, this does not mean that hot wallets are completely unsafe or that cold wallets are foolproof. Hot wallets usually have some security measures like encryption, backup options, biometric authentication, and multi-signature verification. Cold wallets also require careful handling and storage to prevent them from getting lost, damaged, or stolen.
The main advantage of hot wallets over cold wallets is their convenience. Hot wallets are easy to use and access from anywhere and anytime. You can send and receive cryptocurrencies instantly with just a few taps or clicks. You can also take advantage of various services and features offered by different hot wallet providers.
Cold wallets are less convenient than hot wallets because they require an extra step to connect them to the internet. You need to plug in your device or scan a QR code every time you want to make a transaction. You also need to keep your device safe and updated with the latest firmware and software.
Another factor to consider when choosing between hot and cold wallets is their cost. Hot wallets are usually free to use or charge minimal fees for their services. Some hot wallets even pay interest on your stored crypto or offer rewards for using their platform.
Cold wallets are not free to use because they require buying an external device that can range from $50 to $250 depending on the model and brand.
Both hot and cold wallets support a variety of cryptocurrencies and tokens depending on the wallet provider. However, some wallets may support more coins than others or have different compatibility requirements.
Hot wallets tend to support more cryptocurrencies and tokens than cold wallets because they can update their software more easily and frequently. However, some hot wallets may only support specific ecosystems or networks like Ethereum-based tokens or Cosmos -based tokens.
Cold wallets tend to support fewer cryptocurrencies and tokens than hot wallets because they have limited storage space and hardware capabilities. However, some cold wallets may support more coins than others or have different adapters or extensions that allow them to connect with other networks or platforms.
How to Choose Between Hot Wallet vs Cold Wallet?
The best way to choose between a hot wallet and a cold wallet is to consider your own needs and preferences. There is no one-size-fits-all solution for storing and managing your crypto. You may even want to use both types of wallets for different purposes.
Here are some questions to ask yourself when choosing between a hot wallet and a cold wallet:
- How much crypto do you own or plan to own?
- How often do you need to access or use your crypto?
- How comfortable are you with online security risks and offline storage risks?
- How much are you willing to spend on a wallet device or service?
- What features or services do you want from your crypto wallet?
Generally speaking, if you own a large amount of crypto or plan to hold it for a long time, you may want to use a cold wallet for better security and peace of mind. If you own a small amount of crypto or plan to use it frequently for trading or spending, you may want to use a hot wallet for more convenience and flexibility.
Introducing Gem Wallet: A New Kind of Hot Wallet
If you are looking for a hot wallet that is built in the open with feedback from the community and values user privacy, look no further than Gem Wallet. Gem Wallet is a new mobile wallet that allows you to store, send, and receive over +10,000 cryptocurrencies and tokens with ease and confidence.
Gem Wallet is designed to be user-friendly, intuitive, and appealing for beginners and experts alike. You can easily create and backup your wallet, view your portfolio, and make transactions with just a few taps on your phone.
Gem Wallet is also designed to be secure, reliable, and trustworthy. You can rest assured that your private keys are stored safely on your device and encrypted with military-grade technology. You can also enable biometric authentication or a PIN code for extra protection.
Unlike most other software or hardware wallets, Gem Wallet is entirely open source and transparent. This means that anyone can inspect, audit, or contribute to the codebase of the wallet. This also means that Gem Wallet does not collect or share any of your personal data or activity with third parties. You have full control over your privacy and security.
Gem Wallet also offers some unique features that make it stand out from other wallets. For example, you can:
Choosing between a hot wallet and a cold wallet is an important decision that depends on your personal needs and preferences. Both types of wallets have their pros and cons, and you may want to use both for different purposes.
However, if you are looking for a mobile crypto wallet that is built in the open with feedback from the community and values user privacy, you may want to try Gem Wallet 💎.