Can you explain the difference between a Hot Wallet and Cold Storage?
Hot wallet refers to any cryptocurrency wallet that is connected to the internet. Generally hot wallets are easier to set up, access, and accept more tokens. But, hot wallets are also more susceptible to hackers, possible regulation, and other technical vulnerabilities.
Cold storage refers to any cryptocurrency wallet that IS NOT connected to the internet. Generally cold storage is more secure, but they don’t accept as many cryptocurrencies as do many of the hot wallets. Cold storage devices (aka. Trezor, Ledger) also cost close to $80 USD, whereas hot wallets are free.
Should I buy a bitcoin wallet?
If you’re going to own more than $100 USD worth of Bitcoin, Ethereum or any cryptocurrencies, you want to buy a cold storage wallet immediately! I use the number $100 USD because that’s how much a cold storage device costs.
Maybe you’ve heard people say “Bitcoin is so empowering because you can ‘Be your own bank'”? It’s true. You are your own bank. Not Bank of America. So with that responsibility comes some pros and cons. At the end of the day crypto has fewer middleman fees, and less sloppy bank regulation etc, but it is your responsibility to ensure your crypto investments are stored in a safe are yours and yours alone.
Generally, as a rule of thumb, you should only leave as much money on your hot wallet as you would with a leather wallet that you’d keep in your pocket. Think of it this way, if you were held at gunpoint while holding a leather wallet, then you’d only lose that money in your pocket, and not your entire bank account. If you keep all your money in Coinbase it’s as if you are walking around town with all your money in your pocket.
In short, here’s an analogy to help you out: a hot wallet can be thought of like a pocket wallet that you walk around town with, cold storage is a bank vault.
Recap: Hot Wallet Pros & Cons
- Quick access to your cryptocurrency (many hot wallets are accessible via your cell phone)
- Easy to use, and user-friendly
- Hot wallets by definition are connected to the Internet which means that your cryptocurrency is less secure (e.g. hackers, possible regulation, and other technical vulnerabilities)
Best hot wallets:
- Coinbase – use the Coinbase Vault if you can.
Cold Storage: Pros & Cons
- The most secure option
- As it’s completely offline this provides a greater level of safety.
- Expensive to buy ($80 USD+)
- Not ideal for quick or regular transactions (because I leave one of mine at home, and another in a safe deposit box. I personally don’t know anyone that carries around a Trezor for payments — if you’re that person write it in the comments, I’m sure you will)
Best cold storage bitcoin wallets:
- Trezor – Stores BTC, BCH, BTG, ETH, ZCash, Dash (more coming soon)
- Ledger Wallet – Stores BTC, BCH, BTG, ETH, ZCash, Ripple, Dash, ARK, Stellar, (hopefully Monero coming soon) and more
Best cold wallet for Bitcoin, etc?
Here at One Month, we all use Trezor. Trezor is a hardware wallet on which you can store bitcoin, ether, Dash, Zcash, Litecoin, Bitcoin Cash, Bitcoin Gold, 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 buy a Trezor.