Navigating Bitcoin Storage: Choosing Between Hot and Cold Wallets

Dive into the world of Bitcoin wallets, exploring the security and convenience of hot and cold storage options for your digital assets.

Bitcoins and cryptocurrencies are once again back in fashion. Fears of stimulus driven inflation have caused investors to turn their attention back to digital assets.

The decentralized nature of cryptocurrencies means that they are largely unaffected by government monetary policies and thus in theory inflation proof. 

Unlike fiat currencies, cryptos such as Bitcoin do not have a tangible physical presence. In fact, cryptocurrencies only exist in the digital realm and private keys are needed to spend said cryptocurrency.

Bitcoins are in actuality stored on the blockchain with digital wallets being used to store the private keys used to gain access to your own Bitcoins. If you’re looking to get aboard the crypto train, you’ll want to invest in a Bitcoin wallet.


Types of Bitcoin Wallets

A Bitcoin wallet is a device or service that encrypts and stores your crypto keys safely. These wallets range from the simple to highly-complex solutions with military-grade data encryption and self-destruct capabilities.

For the purposes of this article, we’ll be breaking down Bitcoin wallets into two main categories; hot and cold.


Hot Wallets

Hot wallets are basically online services that allow you to store your Bitcoin keys virtually. These are usually free-to-use services that may or may not charge you a fee for storing your cryptos.

One of the main benefits of using a hot wallet is the convenience that comes with it. These websites usually enable you to seamlessly perform transactions on your PC without having to make use of an external hard drive or consult your paper wallet.

Additionally, hot wallets also allow you to send or receive cryptos to other users. Thus making them extremely useful if you regularly perform transactions using cryptocurrency.

In recent times, companies such as Paypal have begun providing their own hot wallet services. With sites such as Paypal charging service fees on transactions performed, other hot wallet services still remain preferable. 

Despite the convenience that hot wallets bring to the table, these services are not without their fair share of issues. Given the value of Bitcoins and the lack of enforcement, there is an inherent risk involved with trusting strangers on the internet to safeguard your cryptocurrencies.

Compounding this issue is the fact that crypto wallets are a favourite target of hackers all over the world. The low risk and high payoff for a successful heist make crypto heists extremely worthwhile.


Uses for Hot Wallets

All of this is why hot wallets should only be used as a temporary storage point for your cryptocurrencies. Where possible, try to keep the amount of Bitcoin stored on your hot wallet to a minimum.

This reduces your potential losses in the event of a hack attack and makes you a less attractive target. 

Now that you understand the risks inherent with using a cold wallet, let’s take a look at cold wallets and why they should be used in conjunction with your hot wallet.


Cold Wallets

Cold wallets also known as “hardware wallets” or “offline wallets” are one of the most secure ways of storing Bitcoin. The main reason being is that these wallets are not connected to the internet thus making it impossible to be accessed online by hackers.

These wallets can come in a variety of shapes and forms - from pen drives to hard disks. Cold wallets store your crypto keys in a physical format which makes it easier to secure. 

For example, to safeguard your Bitcoin keys, all you’ll need to do is to just lock your cold wallet i.e. hard drive in a safe away from prying eyes. 

All of this security does come at a cost however as cold wallets do not offer any of the flexibility that comes with a hot wallet. With a cold wallet, you will need to manually transfer the keys from your PC to your device.

Furthermore, it is all too possible to lose or even damage your cold wallet hence making your Bitcoins inaccessible. 


Uses for Cold Wallets

Hot wallets fulfill a more long-term role when it comes to storage. Ideally, you’ll want to keep the bulk of your crypto keys in your cold wallet and lock it away somewhere safe. As an added precaution, regularly update your software and always have a backup copy of your crypto keys stored away.


Closing Thoughts

With the demand for cryptocurrencies only set to rise in the future, investing in both cold and hot wallets is a wise decision.

However, just remember to never misplace your devices and always have a backup. Find more about the best Bitcoin wallets in this article from Tezro blog: