Wallets play a very important role within the cryptocurrency industry, but cold wallets and hot wallets play this role considerably differently. Either type of wallet has its own attributes and limitations which make it an indispensable tool for traders and investors, but these same attributes also make it vulnerable to different threats.
As with all cryptocurrency wallets, both hot and cold storage solutions are, in essence, software programs which store private and public keys. Both kinds are normally able to connect to specific or generic blockchains and allow users to seamlessly transfer digital coins whilst also monitoring the balance within the wallet.
Normally, wallets accept multiple currencies at a time, with Bitcoin, Ethereum, Ripple, and Litecoin accepted by the majority. Smaller, lesser-known currencies, such as DASH, are accepted by fewer wallets.
The main purpose behind the existence of hardware wallets is security. Disconnected from any exchange platform, they are virtually unhackable, offering the user superb peace of mind. There is a lot to learn about hardware wallets, but suffice to say that whilst the majority of such wallets, including Ledger and KeepKey, come at a cost, it is well worth it.
Hot wallets come in many forms and include mobile, desktop, and web variations. Essentially, what makes a wallet hot is the fact that it is constantly connected to the blockchain or exchange, and funds can be transferred instantly in or out. This provides users with a level of convenience far beyond that of any hardware wallet, but it also comes with higher risks.
Many vital services, including bank accounts, are today available online. Therefore, at first glance, the notion that a hot wallet is considered especially vulnerable might appear counter-intuitive.
What you need to remember is that banks and other online providers invest heavily in securing their network from unauthorised access. Hot wallet providers are normally unable to match this investment because in most cases they are offering the wallet for free.
This is why users should always opt for more reputable hot wallets, such as Coinbase Wallet. Part of a larger group which includes Coinbase and Coinbase Pro, Coinbase Wallet enjoys the security investment made by its mother company into all of its subsidiaries, at no cost to the user.
Given the functionalities and vulnerabilities of both types of wallets, there are specific situations where you would be better off using either one or the other.
If you have invested a considerable sum in Bitcoin or other cryptocurrencies, and plan to hodl for a while, then you should store these funds in a hardware wallet.
On the other hand, if you plan to trade or speculate on a short-term basis, then you should keep your currency in a hot wallet.
Shapeshift is a popular instant cryptocurrency exchange which allows users to trade a variety of cryptocurrencies. As it gained popularity it ended up becoming a victim of its own success, experiencing a rising number of issues and even multiple hacks. Today, Shapeshift has improved its services, yet its reputational damage lingers, with many looking for […]
When you’re an experienced investor who understands the movements of a certain market, you may wish to broaden your horizons and try more advanced trading products. Contracts for Difference (CFDs) could be one such product for you. Working with an online broker, you can trade CFDs in a variety of markets and countries, with a […]
Contracts for Difference, better known as CFDs, are a trading product which is ideal for speculating on financial markets. Best-suited for experienced traders, understanding what CFDs are and how they work can be somewhat confusing. This detailed guide will explain all you need to know about them, and if they are the right trading product […]
Binance is one of the largest cryptocurrencies in the world, offering a range of features at competitive prices. The exchange, which is based in Malta, accepts users from around the world and is a much-loved platform by the crypto community. Binance: An Overview Trading over 100 different cryptocurrencies, Binance can cater to traders looking to […]
Coinbase is one of the world’s largest cryptocurrency exchanges, trusted by millions around the world. It is based in San Francisco, USA, and it is considered to be the largest Bitcoin broker today. Apart from being a traditional centralised exchange, Coinbase encompasses several other cryptocurrency-related services, such as a wallet and developer API. Due to […]
Short selling Bitcoin and other cryptocurrencies is a way to make money when the value of a coin drops. It is an advanced investment option, better suited to experienced traders due to the high risks involved. This guide will show you five different ways to short sell Bitcoin. What Does Short Selling Bitcoin Involve? Short […]
Although cryptocurrencies were first invented by Nakamoto as a way to facilitate payments and get rid of financial intermediaries, they quickly evolved into trading assets due to their high volatility. As a result, asset and forex traders from traditional markets began trading crypto, as a way to turn a profit. While there are many ways […]
The constantly developing cryptocurrency industry is leading to new opportunities for you to make money with Bitcoin. Often likened to the goldrush which hit California in the nineteenth century, Bitcoin has generated some great returns for the more astute amongst its adopters. Today, there are many creative ways to make money with Bitcoin, and you […]