With over 1,600 cryptocurriences in existence, it's crucial to know how to safeguard your crypto assets properly.
For long-term storage, users are encouraged to split their crypto assets into "hot" and "cold" wallets. Let's find out why.
Hot Wallet is simply any cryptocurrency wallet connected to the internet, such as desktop clients and mobile wallets. The hot wallet provides 24/7 liquidity of your digital currency, making transactions easier. Think of it as your actual real-life wallet where you keep a small amount of money in it for day-to-day transactions, but you store most of your money in a bank for security reasons.
A cold wallet is like your savings account. They are not connected to the internet and hence are not exposed to threats from online hackers, making them inherently more secure than hot wallets.
Note that both hot and cold wallets can be used to receive cryptocurrencies, regardless of being offline or online. Most people would use hot wallets to accept payments since it's quicker to verify with a hot wallet that is connected to the internet.
Should I have both wallets?
Despite the burdensome process to go through to manage an extra wallet for cold storage your cryptocurrencies, it's important due to the possible security attacks on operating systems such as Android and iOS which most people use to store their cryptocurrencies. If you have a large amount of funds, you won't want to risk being hacked by keeping everything in a hot wallet which is more likely to be attacked by malware.
What do I need for cold storage?
The most commonly used hardware for cold storage is the dedicated hardware wallets such as Ledger, Keepkey, Trezor that offer the safety features of a cold wallet mixed with the ease of use of a hot wallet. What makes them so secure is that the user's private key always stays in the wallet, hence no hacker can gain access to the funds stored inside it.
In addition, users have to manually press a button on the hardware to verify the transaction, therefore preventing spoofing attacks. So, if you're heavily invested into cryptocurrencies, definitely get yourself a cold wallet to secure your funds.