We tell you how to choose the right wallet option for holding cryptocurrency and tokens
When it comes to holding cryptocurrencies, choosing the right wallet is crucial to the safety of your assets. Our experts explain what cold and hot cryptocurrency wallets are, their pros and cons, and how to choose the best option for your needs
What is the difference between hot and cold cryptocurrency wallets
A cryptocurrency wallet is a tool where users hold, send and receive cryptocurrency. It does not hold the cryptocurrencies themselves, but stores information about balances and transactions in the blockchain. A cryptocurrency wallet is essential for storing your assets securely as it protects them from theft and loss. With its help, you can easily transact and pay for goods and services or exchange these assets. The wallet also helps you track your investments, see their value and analyze the market.
Cold wallets - these are devices or programs that do not connect to the Internet. Such wallets can be hardware or software. In the first variant the information is stored on physical devices, and in the second variant on local media.
Hot wallets - have access to the internet and facilitate transactions. Such wallets exist in the form of mobile applications, web services or desktop programs.
Sometimes there is confusion in the classification of cryptocurrency wallets, so if the “hot” wallets differ from the “cold” by the presence of a permanent connection to the Internet, there is also a classification of cryptocurrency wallets depending on who stores the keys of access to cryptocurrency. According to this criterion, they are custodial, when the access keys are stored by a crypto service (or custodian), or non-custodial, when the access keys are held by the user and he himself manages his funds.
Examples of custodial wallets are mostly exchange wallets. The limitations associated with their use are the ability of the custodian to restrict access to your funds. Non-custodial wallets allow the user to own the access keys and are more secure for saving funds.
Cryptocurrency wallets of all types have both advantages and disadvantages. Hot wallets give free access to funds, but because of their constant connection to the network, they become vulnerable to cyber threats, hacker attacks or phishing schemes. This gives fraudsters the opportunity to use a variety of deception techniques to gain access to a user's keys and funds. In addition, service issues cause loss of access to funds in the event of technical failures or platform hacks. Despite these risks, hot wallets often create different layers of security, such as two-factor authentication and encryption, which increases asset protection.
Cold wallets are more secure than hot wallets. Offline storage minimizes the risk of hacking and funds can only be accessed physically. They are suitable for long-term investments as the funds lie cold and are less exposed to risks. The disadvantages of cold wallets include the use of a hardware device, which takes longer to gain access.
How to choose a crypto wallet
Choosing a cryptocurrency wallet depends on your needs. Hot ones are suitable for frequent transactions, cold ones for long-term asset storage. The right wallet affects not only the convenience of use, but also the safety of your funds. Therefore, deciding which storage to choose depends on the following criteria:
Security. Check what the wallet offers: two-factor authentication (2FA), private key encryption, the ability to create backups and the presence of access restoration features.
Supported cryptocurrencies. Some wallets only work with certain assets. Therefore, make sure that the desired cryptocurrency is supported by the chosen wallet.
Ease of use. Pay attention to the wallet's interface - an intuitive design will simplify navigation. If you plan to use the wallet both on mobile devices and desktops, check if it is available for both platforms.
High rating. Research user reviews and look into the reputation of the development company. Popular and established wallets increase credibility.
Commissions. Examine the fee structure for transactions and withdrawals. Some wallets charge a high amount for transactions or maintenance.
There are other features to consider when choosing a cryptocurrency safe depository: the ability to exchange cryptocurrencies, integration with other services (e.g. DeFi platforms), analytics and transaction tracking. Despite the wide range of security measures applied by cryptocurrency wallet developers part of the issues is on the user's side. And who should be prudent enough to store private keys or access code to his funds, not to spread information about how and where he keeps his cryptocurrency savings.
Unfortunately, statistics show that cybercriminals use user's inattention and their negligent attitude to the security of storing funds much more actively than searching for vulnerabilities in software code.
Suitable type of wallet for newbies
For those who are just getting acquainted with cryptocurrencies, hot wallets are suitable. Constant connection to the Internet will help you to react quickly to market changes and use cryptocurrencies for purchases. Hot wallets support a large selection of cryptocurrencies. Thus, novice investors experiment with assets and learn how to use them. Another plus of the hot wallet is that setting up and registering an account takes a couple of minutes. Anyone can download the app and already hold their assets.
Hot wallets provide all the necessary tools to comfortably start working with cryptocurrencies, while offering convenience and accessibility. With them, beginners can easily familiarize themselves with the market, take their first steps in trading and use their assets without facing unnecessary complexities.
The right kind of wallet for experts
Professional investors and traders also face this problem. But there is no single solution to this issue. People with experience are able to make a choice in favor of one or another wallet, taking into account their pros and cons. Our team still recommends combining two types of wallets. A hot one can be used for everyday transactions, while a cold one can be used to hold significant amounts of money that you don't plan to use in the near future.
Combining hot and cold wallets helps you better organize your crypto assets by separating short-term and long-term investments. This simplifies record keeping, as you can easily track how much is involved in short-term transactions and how much in long-term investments. This approach makes it easier to analyze the portfolio: you can see which investments have been successful and which have not, which helps you develop a more effective asset management strategy.
Ultimately, the choice between a hot and cold wallet depends on your cryptocurrency needs and strategy. By prioritizing your needs, you can create a safe and efficient system for managing your assets.
The most popular crypto wallets
Hot wallets are ideal for active traders and users who frequently interact with cryptocurrencies. We have collected examples of those that have already proven to be reliable storage facilities in the crypto market:
MetaMask is one of the most popular wallets for handling tokens in Ethereum and other networks compatible with its software environment (EVM networks). It is easy to use and its integration with decentralized applications make it a favorite choice among DeFi users.
Trust Wallet is the official wallet of the Binance exchange and supports multiple blockchains. It offers users the ability to store not only major cryptocurrencies but also NFTs, making it a versatile tool for crypto enthusiasts.
Coinbase Wallet - provides a user-friendly interface for users of the Coinbase ecosystem. It provides high security and convenient features for trading and storing assets.
Exodus - stands out with a beautiful design and easy navigation, making it a great choice for beginners. It supports multiple cryptocurrencies and offers a built-in exchange, making it easy to manage your assets.
Of the cold wallets, there are several popular models, each offering unique features and levels of security:
Ledger - offers a wide range of models, each of which provides a high level of security and support for multiple cryptocurrencies. Its user-friendly interface and ability to connect to mobile devices make it very practical.
Trezor - is also known for its reliability and security. It has an easy-to-use interface and provides many features to protect assets, including support for two-factor authentication.
CoolWallet - combines mobility and security by presenting a slim hardware wallet that is easy to carry. It offers convenient cryptocurrency management through a mobile app and supports multiple currencies.
SecuX Wallet - Supports multiple cryptocurrencies and has a user-friendly interface that makes it easy to use. Also offers features such as multi-signature and a built on screen to confirm transactions.
SafePal - also supports a wide range of cryptocurrencies. It has a mobile app that makes it easy to manage assets and exchange cryptocurrencies while maintaining a high level of security.
The trend for crypto wallets is taking shape because of the growing interest in cryptocurrencies and blockchain technology. Users are opting for wallets that are secure and easy to use. If you are thinking about choosing a cryptocurrency wallet, take a closer look at those options that have a high level of trust in the market.
