Hot wallet vs. cold wallet: what is the difference?
Traditionally, you keep your money in a bank account, or in an old sock under your bed. As you can see, there are several ways you can do that. But when you buy crypto coins or tokens online, you naturally store them in a wallet. Again, you have a choice between different options.
You can choose to store your coins and tokens in a hot wallet (software wallet) or a cold wallet (hardware wallet). Read on if you want to know the difference between these two types of wallets. We will tell you what the advantages and disadvantages are, so you can decide for yourself which wallet you want to use.
What is a hot wallet?
A hot wallet is also called a software wallet. This is because you only see the user interface of the wallet. You can access a hot wallet through an internet browser, online app or desktop application.
There are several forms of a hot wallet. The most common form is the wallet that is linked to a crypto
exchange, such as Coinmerce. By logging into your account, you also have access to the wallet.
It is also possible to have a hot wallet in your web browser, such as the Metamask wallet. This is an Ethereum-based wallet that you can add as an extension to your web browsers, such as Google Chrome or Firefox. The advantage is that you always have quick access to your wallet. However, it is not recommended to store large amounts of coins and tokens in it.
You also see more and more hot wallets as mobile applications appear. Coinmerce, for example, also offers an application for smartphones. The advantage of such applications is that you can quickly access your wallet from anywhere in the world.
- Always and easily accessible
- Available in different forms (web application and app for smartphones)
- Less secure than the cold wallet
What is a cold wallet?
When we talk about a cold wallet, we mean a hardware wallet. This is, as the name suggests, a wallet in the form of a piece of hardware. This means that you can physically hold this wallet.
A cold wallet is often a USB stick that you can plug into a computer or laptop. Nowadays there are also cold wallets that do not have a USB port. You can then only connect through Bluetooth.
The moment you connect a device to your cold wallet, the private and public keys will be checked. When this is OK, you will be able to access the crypto coins and tokens that are on the wallet.
The world of cryptocurrency is incredibly modern. However, you will still find traditional aspects within this world. For example, consider the paper wallet, which at first glance does not really fit within the idea of blockchain and crypto.
A paper wallet is in fact a QR code that you must print out. Without this QR code, you cannot access the crypto coins and tokens stored in your wallet. This also makes the wallet inaccessible to hackers. Unless they are in possession of the QR code.
Still, the paper wallet is considered insecure, which is why we cannot recommend it. If you want to opt for a cold wallet, the wallets from Trezor or Ledger are the most obvious choices.
- Easy for long-term investors
- You can lose the wallet
Which wallet is easier to use?
A hot wallet is more accessible than a cold wallet. This is because the hot wallet is always connected to the internet. This makes it very easy to access the wallet. This can be done through the web browser, browser application, an app on your smartphone or an application on your desktop.
The world of crypto trading can move incredibly fast. Sometimes you want to sell one of your crypto coins quickly to make a nice profit or avoid a loss. When you have a cold wallet, you will first need to have it physically with you. Next, you'll need to connect it to a computer or laptop and transfer the coins to an exchange.
Once that is completed, you can only sell the coins. So, a fair amount of time passes before you want to use your crypto coins. Therefore, the cold wallet is not accessible to short-term investors, and certainly not to day-traders.
The poorer accessibility can also work to your advantage. Suppose you have resolved to keep a cryptocurrency for several years; it is easier if you do not have immediate access to it.
Which wallet is safer?
The cold wallet is without a doubt safer than a hot wallet. This is because a cold wallet can be completely disconnected from the Internet. The moment there is no connection to the cold wallet, it is impossible for hackers to gain access to the contents of the wallet.
There is one caveat to this, however. You will of course have to store the cold wallet in a safe place. If you always carry a cold wallet around in your bag, it is better to use a hot wallet. So, make sure you store a cold wallet in a safe place, such as a vault.
Which wallet do I use at Coinmerce?
When you buy crypto coins or tokens from Coinmerce, we will store them in you own wallet. This is a hot wallet, which is directly linked to our exchange. This way we can offer the best accessibility, as you can buy and sell your coins or tokens directly.
It is also possible to download our app for Android and iOS. You can then access your coins and tokens through our app, so you can always sell (or buy) them. Wherever you are!
You don't have to worry about the security of your coins and tokens. Coinmerce provides the best security for our exchange and wallets. This applies to both the web wallet and the app wallet. We always store 90% of the coins of our customers in a hard wallet for safety reasons. 10% is stored in hot wallet for liquidity.
You will always need to keep money in a safe place. You can do that, for example, with an account you open with a bank. But if you want to store your crypto coins and tokens, you will need a wallet. You then have a choice of different types of wallets.
A hot wallet is a software application that you can access through a web browser or mobile application. The advantage is that you can quickly access your crypto coins from anywhere in the world.
A disadvantage is that this wallet is less secure than a cold wallet. This is because a hot wallet is always connected to the internet. This means that there is also always a possibility that hackers can get to it. Therefore, always choose a secure hot wallet (such as Coinmerce).
The cold wallet is safer because this is a physical wallet that you can disconnect from the network. You will have to keep the cold wallet in a safe place. Because if you lose this wallet, you will also no longer have access to the crypto coins and tokens that were on the wallet.