Hot Storage vs. Cold Storage
So what is hot storage and cold storage anyway? Both terms are related to the crypto-currency Bitcoin.
After you buy bitcoin, a popular way to store it is to use something called a hardware wallet. This is where the hot and cold wallets come into play. These hardware wallets allow you to easily send and receive bitcoins over a network connected to the internet.
What is Hot Storage?
Hot storage is a hardware wallet that is connected to the internet.
For example, if you have your wallet stored on a smartphone that is connected to the web this would be described as a “hot wallet”. When you use a “hot wallet” it’s like carrying around your real wallet all the time.
So essentially you’re leaving yourself open to theft by someone who is technically minded enough to hack into your computer to access your bitcoin wallet. When a bitcoin is gone, it’s gone for good!
In order to protect your wallet from looters and thieves, people will usually leave their wallets on a computer or removable device that is not connected to the internet. This is also called a “cold wallet” or “cold storage”.
What is Cold Storage?
Storing your crypto-currency on a device that is offline is the most secure form of bitcoin storage. Also known as a “cold wallet”, this storage method is best suited for the long-term.
A cold wallet is not intended to be used for frequent transactions. As a cold wallet is not directly connected to the internet essentially hackers cannot steal funds from it. The hot wallet, on the other hand, remains susceptible to attack, which is why users should only store a minimal amount of funds in it.
One thing to keep in mind is how a cold wallet can be stored on nearly any device. While using a computer seems to be the most obvious solution, as long as it is not connected to the internet, any device can be used as a cold wallet.
Hot Storage: Pros & Cons
- Quick access to your bitcoins.
- Numerous support for different devices.
- User-friendly applications make transactions simple to manage.
- Your bitcoins are under constant risk of attack.
- Permanently losing all your funds is possible. Damaging your device could destroy your wallet.
Cold Storage: Pros & Cons
- One of the best methods of storing large amounts of bitcoin for a long period of time.
- As it’s completely offline this provides a greater level of safety.
- Susceptible to external damage, theft and general human error.
- Not ideal for quick or regular transactions.
Having a bitcoin wallet is the best method of securing your bitcoins, but no method is 100%. In my opinion stay flexible, keep some in hot storage but most in cold storage.
Generally as a rule of thumb it’s suggested that you leave as much money in your hot wallet as you would with a real wallet. For example if you were held at gunpoint you’d only lose everything in your real wallet, but not your entire bank account.
Remember, it is no one else’s responsibility to ensure your crypto investments are kept safe!
What is the best wallet?
Here at One Month we use Trezor. Trezor is a hardware wallet on which you can store Bitcoin, ether, Dash, Zcash, Litecoin, bitcoin cash, and any ERC-20 token. It allows for 2-Factor Authentication, and if you lose your Trezor – as long as you remember your secret password you can quickly regain access to all your keys, money, history, accounts and emails. If you own or are thinking of owning cryptocurrency, you’ll want to pick up a Trezor!