The Difference Between a Hot Wallet and a Cold Wallet
New to crypto? We’ve all been there. As a community, GMR are here to offer advice and guidance for anyone looking to navigate the world of crypto and gaming
New to crypto? We’ve all been there. As a community, GMR are here to offer advice and guidance for anyone looking to navigate the world of crypto and gaming. Something to get used to is the crazy new terms and phrases that crop up here, there and everywhere when talking about anything crypto. Two such terms are hot wallet and cold wallet, which help to differentiate two different types of crypto wallets. Here’s the difference between the two.
What is a Crypto wallet?
If you’ve not dipped your toes in the crypto waters, or shall we say high seas, we have created a handy guide for those getting started with tokens and wallets, which you can read here. However, we will give you a brief overview now. Simply, a crypto wallet is used to store your keys in order to buy bitcoin and other cryptocurrencies. Many people get slightly confused, and we can’t blame them, when we use the same term ‘wallet’ to describe something which technically doesn’t hold currency. Unlike a traditional, physical wallet, your crypto wallet does not store any of your tokens and coins. Your purchased tokens and coins are stored on the blockchain, of which they were purchased.
So, now let's delve a little deeper. Creating a crypto wallet you will have the choice between a hot wallet and a cold wallet. You can decide which based on your personal preference. A hot wallet is a storage wallet which is directly connected to the internet. A good example of this is a phone app. This is one which many people opt to use, since it is simple to access. As they are already connected to the internet, a hot wallet allows you to make a transaction in a few simple clicks, ideal for those wish to regularly trade tokens and coins. The only downside is that they are susceptible to security concerns, since they can easily be accessed by hackers.
An alternative for this is to set up a cold wallet. The opposite of a hot wallet, they are not connected to the internet. You will usually find two types of cold wallets; a hardware wallet and a paper wallet. For the time being, hardware wallets are the most popular. Think of your usual USB sticks and hard drives. These are examples of cold wallets. Your private keys can be stored here, keeping them safe from potential hackers and thieves. However, simple transactions are not easy to do and take time, as they will have to be connected to the internet in order to sell and buy.