Introduction
Hot wallet (also known as software wallet refers to the cryptocurrency wallet that remains online (always connected to the internet). It allows to store, send or receive funds (cryptocurrencies) through mobile phones, tablets or computer. It is user friendly and suitable for frequent transactions. On the other hand, cold wallet (also known as hardware wallet) refers to the offline storage that is suitable for storing large amounts of digital currency for a long period of time. In this post we are going to highlight some major distinctions between these two types of crypto wallets.
Difference Between Hot Wallet And Cold Wallet
Key differences between hot and cold wallet can be explained as follows:
1. Meaning
Hot Wallet: It is a software based cryptocurrency wallet that is connected to the internet and allows users to perform digital transactions (receive, send or store cryptocurrencies) through mobile, desktop or web wallets.
Cold Wallet: It is hardware based crypto storage solution that stays offline (not connected to the internet).
2. Internet Connection
Hot Wallet: It always remains online so it requires internet connection to perform digital transactions.
Cold Wallet: Private keys are stored offline in this type of crypto wallet. So, it does not require internet connection
3. Ideal For
Hot Wallet: This wallet is ideal to perform small and day-to-day frequent digital transactions
Cold Wallet: It is suitable for long-term holding of digital assets (cryptocurrencies)
4. Simple/Complex
Hot Wallet: Because of user-friendly interface and easy setup process, it is simple to understand and use for the beginners
Cold Wallet: It is more complex than hot wallet because newcomers may feel difficult to understand seed phrases and generate private keys.
5, Cost
Hot Wallet: Generally, hot wallet does not require initial investment, so it is cost effective than cold wallet
Cold Wallet: Most cold wallets require initial investment or upfront cost. So, it is costlier than hot wallet.
6. Security Level
Hot Wallet: It is more vulnerable to online hacking, malware and phishing. So, it is riskier than cold wallet.
Cold Wallet: It is more safe than hot wallet because users have full control over private keys.
Also Read
Things You Should Know Before Buying Bitcoin
7. Instant Access
Hot Wallet: It provides instant access to the users for digital transactions. So, it is convenient than cold wallet
Cold Wallet: It requires physical access to perform transaction, Therefore, it is inconvenient than hot wallet.
Hot Wallet Vs Cold Wallet (Comparison Table)
|
Basis
|
Hot Wallet |
Cold Wallet |
|
Meaning |
Online digital wallet |
Offline digital wallet |
|
Internet |
Required |
Not required |
|
Ideal For |
Frequent transactions |
Long-term storage |
|
Instant Access |
Yes |
No |
|
Cost-effective |
Yes |
No |
|
Security Level |
Low(moderate) |
High |
|
Simple/Complex |
Simple |
Complex |
