A Brief Introduction to Hot and Cold Cryptocurrency Wallets

If you are familiar with cryptocurrency, then you must want to know about different types of wallets. Mainly there are two types of cryptocurrency wallets: hot wallet and cold wallet. In this blog, explore the essentials of these two types of wallets in cryptocurrency wallet development.

Difference between Hot and Cold Cryptocurrency Wallets

The difference between hot wallets and cold wallets is that hot wallets are the ones that are directly connected to the internet. While cold wallets are not connected to the internet. Most people who hold digital assets e.g. cryptocurrency (Bitcoin, Litecoin, etc.) have both cold and hot wallets because they are designed for different purposes.

Hot Wallet

Many users have accounts on Poloniex and Bittrex. These applications provide a hot wallet to users. These companies save your data to their own infrastructure and server.

From a security perspective, a hot wallet is vulnerable to theft or hacking because these wallets are directly connected to the internet. So, people who have this kind of wallet, need to keep a minimum amount of cryptocurrency on it.

Many applications on the internet that provide hot wallets are exodus.io, and Dash QT wallet. If you have a Coinbase account then it is also considered as a hot wallet. Some applications that provide hot wallets also keep the private key of your wallet. It's a big risk because if anyone has your wallet's private key then he will be able to withdraw all of the money from the wallet.

Also, there are some software available on the internet that do not keep your private key, like Exodus. But still, there are possibilities of wallet hack because your private key is still in your device which is connected to the internet.

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Cold Wallet

A cold wallet is a hardware device that is pluggable to the internet-connected device. There are many cold wallets but some of them are very popular like Trezor.io, LedgerNanos, and Keep Key.

These wallets are very secure because they are password or fingerprint or thumbprint-protected. Honestly speaking, it is kind of hack-proof.

A cold wallet is accessible by its own company software. These wallets do not use your private or public key until you are not providing access.

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Summing Up

The fundamental differences and security implications between hot and cold cryptocurrency wallets become evident. Understanding these distinctions is crucial for individuals seeking reliable and secure means of managing their digital assets in the crypto world.

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