What are cold and hot wallets and what is the difference between them?

Offline cold wallets offer superior security by isolating private keys, unlike online hot wallets vulnerable to cyberattacks. Choosing depends on your needs: prioritize security with cold storage for long-term holdings, or convenience with hot wallets for frequent trading.

Feb 28, 2025 at 12:00 pm

Cold wallet: a security bastion for offline storage

Cold wallets, often called "offline wallets", are wallets that store cryptocurrencies in offline devices. It is like a safe in the mountains, isolating the private key from the network, greatly reducing the risk of being attacked by the network.

Cold wallet carriers are diverse, and computers, mobile phones, or dedicated hardware devices that are not connected to the Internet, such as Ledger Nano S, Trezor and other hardware wallets belong to this category.

When using it, the user generates the wallet address and private key offline, and deposits the encrypted currency into the address. The private key does not touch the Internet throughout the entire process, making it difficult for hackers to steal it. However, the cold wallet creation and transaction process is relatively complex and requires additional equipment assistance.

Hot Wallet: a convenient online transaction assistant

Hot wallets are online wallets connected to the Internet, similar to the commonly used APPs on mobile phones, allowing you to access and manage cryptocurrencies at any time. It is divided into software wallet, web wallet and exchange wallet.

Software wallets such as Coinbase wallet on mobile phones can be easily operated after downloading and installing; web wallets do not need to be downloaded and can be used in the browser; exchange wallets are closely connected to cryptocurrency exchanges, and transactions are extremely smooth.

Hot wallets have obvious advantages, fast transactions and easy operation, and are suitable for users with frequent transactions. But it also has disadvantages, because it is connected to the network and is vulnerable to cyber attacks, and private keys and cryptocurrencies are at risk of being theft.

Security: Cold wallets are better

Cold wallets are extremely secure, and offline features keep them from attacks by network hackers and malware. Private keys are generated offline and stored. If physical security is done, funds can be secured.

Hot wallets are relatively low in security, and network connections make them the target of cyber attacks. Although some hot wallets provide multi-signature, secondary confirmation and other measures, it is still difficult to compare with cold wallet security. If a hot wallet is subject to a phishing attack, the user may disclose the private key and cause asset losses.

Convenience: Hot wallets are the best

Hot wallets are easy to use. As long as they have the Internet, they can trade and transfer anytime and anywhere. They are as convenient as shopping in convenience stores, and are suitable for users with high transaction efficiency. Cold wallets are not convenient, and they need to connect to specific devices during transactions. There are many operating steps and are not suitable for frequent trading scenarios. They are more like deep mountain safes. Although they are safe, they are inconvenient to use.

Applicable scenarios: Each has its own focus

Cold wallets are suitable for storing large amounts of cryptocurrencies for a long time, refrigerate assets, reduce frequent transaction risks, and ensure long-term security. If investors hold Bitcoin for a long time, they can be safe to store it in a cold wallet. Hot wallets are suitable for users with frequent daily transactions. For example, cryptocurrency traders need to respond quickly to market fluctuations, and hot wallets can meet the needs of instant transactions.

The combination of cold wallet and hot wallet

Many users adopt a combination of hot and cold wallets. Keep most of the assets in cold wallets to ensure security, and use small amounts of funds used for daily transactions to provide hot wallets for convenience. This takes into account both security and convenience, which not only ensures the security of the core part of the asset, but also allows flexible operation in daily transactions.

How to choose a wallet

When choosing a wallet, you need to rely on your own needs and risk tolerance. If you hold a large amount of cryptocurrency for a long time, you should pay more attention to security. A cold wallet is the best choice; if you trade frequently and pursue convenience, a hot wallet is more suitable. You can also refer to other people's experience and choose wallet products with good reputation and good security records.

Security precautions for using wallets

Whether you use a cold wallet or a hot wallet, security is crucial. For hot wallets, you should choose a reputable service provider, enable two-step verification, regularly check your account, avoid public network use, and properly keep your private keys. Cold wallets should prevent physical damage and loss of equipment, and regularly back up private keys, and pay attention to environmental security when operating.

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