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What is the difference between crypto cold storage wallets like ledger and online hot storage wallets

With recent news about crypto related companies and exchanges having financial issues and stopping withdrawals of funds, some crypto holders look to cold storage wallets like ledger to put them in control of their crypto and its safety.

When an individual purchases crypto from an exchange, in most cases (depending upon exchange) the default wallet will be an online wallet controlled by that exchange. The investor or holder can then decide to leave the crypto on their exchange’s online wallet or move it to their own digital wallet. There are 2 main types of digital crypto wallets and they can be described as “hot wallets” or “cold wallets”.

What is the difference between crypto cold storage and hot storage (Crypto cold vs hot wallets)?

The key differentiator between a hot wallet and a cold wallet is that a hot wallet is connected to the internet and a cold wallet is not.

When an individual purchases crypto and you want to store it yourself, you have to choose between holding your cryptocurrency in a “hot wallet”, a “cold wallet”, or using a combination of the two. A hot wallet offers a more convenient and faster access to the wallet, however it could be vulnerable to online attacks, which could lead to theft of your crypto. A cold wallet, like a ledger is typically not connected to the internet, so while it may be more secure, it’s less convenient.

How does a crypto wallet work?

A crypto wallet allows its owner to hold and store crypto funds. A crypto wallet is comprised of the public key and the private key. Both of these keys are required to perform and complete crypto transactions (buying, selling, and transferring).

A public key is how you send and receive money to your account, it is like a bank account number. The public key can also be called your “wallet address.” Your private key is like your bank password, and how you access your account to move around or do other things with your crypto. While you can keep these keys on a piece of paper, it’s very important to keep them safe and secure. If you lose your key, you could lose access to all of the crypto funds in your account or wallet.

Should I use a cold storage wallet or a hot wallet?

There are pros and cons to both cold wallets and hot wallets. We have listed several of them below to help you with this decision

Hot Wallet Pros

  • Always online
    • There is no need to jump from offline to online when buying or selling crypto.
    • You can typically type in a password and have immediate access to your crypto and wallet
  • Ease of use
    • Simple access to the wallet
    • no extra technical steps to move funds from one wallet to another

Hot Wallet Cons

  • Less Security
    • Because the wallet is always online it is more susceptible to online attacks and theft of cyrpto
    • It some cases it can be accessed with just a password
    • If someone gained access to your PC, your credentials could be cached or saved providing access to your crypto
  • Control of Private Keys
    • Some hot wallets or exchange provided wallets hold the wallets private key, this puts them ultimately in control of the wallet
      • If an exchange or wallet was not reputable and ever had financial or technical issues the wallet could be at risk of being frozen or losing access

Cold Wallet Pros

  • More Security
    • Stealing from a cold storage wallet usually would require physical possession of the cold wallet, as well as any associated PINs or passwords that must be used to access the funds.
    • Typically hardware wallets are designed to be immune to hacking.
      • Even when the device is connected to the computer or connected via bluetooth, the crypto on the device are nearly impossible to steal as all transactions must be signed “in – device” and only broadcasted to the network from your computers internet connection.
      • Even if a malware tried to steal crypto by signing a transaction initiated in your hardware cold wallet the signature would not be correct so it would not work.

Cold Wallet Cons

  • Inconvenient to use
    • Hardware cold wallets are less convenient than hot wallets because they must be powered on and then connected to the internet.
    • Typically you have to enter pins and passwords to gain access
    • In order to make a transaction or view your funds you have to physically connect a device
  • Cost
    • Hardware Cold wallets can cost between $40 and $250
    • You may want to purchase additional items to safely store your recovery seed if you ever lost the device.
Ledger wallet, ledger cold storage, ledger crypto wallet
Ledger Nano S crypto wallet

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