Cold and hot cryptocurrency wallets. What is the difference and how to create them?
Cryptocurrency wallet - which one to choose? How to create? Hot or Cold cryptocurrency wallet?
After you have bought the first coins on the exchange, the question appears, and where to store them further. Of course, you can leave the tokens on the account balance, and this is the third type of cryptocurrency wallets - custodial.
But we are here to understand the basic terminology once and for all - what is the difference between a cold wallet and a hot one (Spoiler: Not temperature, well, almost)) and how to create them in general to safely and securely store your savings.
Cold cryptocurrency wallets
A cold wallet that is stored outside of the internet. It can be a physical device, such as a USB drive or hard drive, needed to access the currency. There are also paper wallets that have secret keys written on them.
Here's what hardware wallets look like:
Ledger cold wallet
Cold wallets are also divided into two types: it's important to understand the difference between so-called "thick" and "thin" wallets.
Thick wallets(full node) store the entire blockchain of a particular cryptocurrency on a hard disk. This means they download and store all data about all transactions on a computer or other device. Complete control. However, when first launched, it can take anywhere from a week to a month to load all the blocks in the network!
Light node wallets do not store the entire blockchain, but load only the necessary information required for transactions. This allows for faster processing. However, their disadvantage is that they are less secure than thick wallets because they rely on the vendor's server to confirm transactions.
Existence of significant disadvantages.
For example, any cold wallets are not always convenient to use. To access your funds, you need to be connected to a computer, which can take some time. This can be inconvenient if you want to make a quick transaction. Plus, a physical wallet isn't free - the average cost is $150.
Hot cryptocurrency wallets
These can be accessed on any internet-connected device - a computer or cell phone. Hot wallets make transactions easier because they are available anytime, anywhere.
However, they are less secure than cold ones as they can be attacked by hackers and viruses. In addition, if you have access to your funds, attackers can access them as well.
Nevertheless, there are ways to protect hot cryptocurrency wallets. For example, you can use multi-factor authentication to make sure that only you can access the wallet (FaceId, fingerprint, mail notifications, secret code).
The most popular software vaults:
- Bitcoin wallet
Electrum cold wallet
Let's move on to the most interesting point of the article.
How to create a cold and hot cryptocurrency wallet?
Creating a cold cryptocurrency wallet is not a complicated process, it is enough to spend a few minutes, register on one of the selected services, download an extension in the browser or a full desktop application.
The answer to the question in the title, depends on what type of wallet you want to create. For example, USB wallets may require the installation of special software to run. There are many models: with varying levels of security, support (some involve online chat with 24/7 support), and additional features, they can be stored in a safe or other secure location.
The bottom line.
Cold cryptocurrency wallets are more secure, but less convenient to use than hot wallets. When choosing one, it is important to consider your personal requirements for security and usability.