The difference between cold wallets and hot wallets: Where should your crypto assets be stored?

Core Differences Between Two Types of Wallets

When it comes to managing crypto assets, cold wallets and hot wallets are two unavoidable concepts. Simply put, hot wallets are online wallets connected to the internet, capable of storing, sending, and receiving cryptocurrencies. Meanwhile, cold wallets are offline storage tools, physically isolated from network environments.

This distinction may seem simple, but it has far-reaching implications—it concerns your asset security, transaction efficiency, and even investment strategies.

Hot Wallets: Balancing Convenience and Risks

What is a hot wallet?

A hot wallet is connected to the internet, allowing users to access assets anytime and anywhere. Based on device type and control method, hot wallets are divided into several categories:

By device:

• Web Wallets: Accessed via browsers, data stored on service provider servers
• Mobile Wallets: Installed as apps on smartphones, supporting PIN or fingerprint authentication
• Desktop Wallets: Installed locally on computers, with encrypted data stored on hard drives

By private key control:

• Custodial Wallets: Private keys managed by third parties (e.g., certain exchange wallets), requiring trust in the service provider
• Non-Custodial Wallets: Users hold their private keys, with full control

Currently, web and mobile wallets are the most common because of their convenience.

Advantages of hot wallets:

• Easy and intuitive to operate, friendly to beginners
• Fast transactions anytime and anywhere, suitable for active traders
• Support multiple chains, flexible portfolio management
• Mostly free to use, low cost
• Compatible with interactive scenarios, can seamlessly connect with DApps

Disadvantages of hot wallets:

• Always online means always at risk, vulnerable to hacking
• Dependence on network connection; transactions cannot be made if offline
• Even with protective measures, security is not as high as cold wallets

Cold Wallets: Secure but Less Convenient

What is a cold wallet?

A cold wallet stores private and public keys completely offline, mainly in two forms:

• Hardware Wallets: Dedicated hardware devices (like Trezor, Ledger), connecting via USB or Bluetooth for transactions
• Paper Wallets: Keys printed on paper, stored as QR codes

Without network connection, cold wallets are the preferred choice for long-term storage of large assets.

Advantages of cold wallets:

• Physically isolated from networks, making remote hacking nearly impossible
• Highest security, suitable for long-term holding
• Not affected by network fluctuations

Disadvantages of cold wallets:

• Complex operation, requires learning how to use
• Slow transaction speed, not suitable for frequent trading
• Higher initial cost (hardware wallets usually require payment)
• Losing or forgetting keys may result in permanent asset loss

Overview of Differences Between Cold and Hot Wallets

How to Safely Use Hot Wallets

Since hot wallets carry risks but are widely used for their convenience, the key is to learn how to protect them properly:

• Do not store large amounts of funds in hot wallets; use them only for necessary transactions
• Distribute assets across multiple wallets so that a single attack doesn’t result in total loss
• Download apps and update software from official sources; beware of counterfeit versions
• For non-custodial wallets, securely store private keys and seed phrases, and do not share with anyone
• Enable two-factor authentication (2FA) for added protection
• Avoid clicking suspicious links to prevent phishing attacks
• Prepare a separate wallet for small airdrops and DApp interactions; do not mix usage

Common Questions About Hot Wallets

Will hot wallets definitely get hacked?

Not necessarily. Security depends on subjective factors (how you manage your private keys, whether you operate cautiously) and objective factors (network risks, device risks, service provider system risks). Following security best practices can significantly reduce the risk.

When should you choose a hot wallet?

• When frequent trading or interactions are needed
• When the amount of funds is small and does not involve long-term large storage
• When convenience outweighs absolute security
• For beginners, requiring easy-to-use tools

When should you choose a cold wallet?

• When holding large amounts of crypto assets for the long term
• When security is the top priority
• When you have basic operational knowledge

The Best Strategy: Combining Cold and Hot Wallets

In practice, the smartest approach is using both cold and hot wallets together:

• Store most assets (70-90%) in cold wallets as a “vault”
• Keep a small portion (10-30%) in hot wallets for daily transactions and interactions

This way, you can protect your core assets while maintaining transaction flexibility. Understanding the differences between cold and hot wallets enables you to make informed choices based on your needs.