A digital wallet is a place where you store your digital money and other relevant important information and identification. These wallets help you manage and organize your transactions. It is very important to keep digital wallets safe because if you lose them you will have no way to access your wealth. This clearly means that your money is as safe as your wallet.
There are two types of wallets in cryptocurrency, hot wallets and cold wallets. In the simplest of words, hot wallet is the one that is connected to the internet whereas the cold wallet is offline. You could also say that hot wallets work like checking accounts and cold wallets are more like your savings account.
Pros and cons of hot and cold wallets
Hot wallets – pros
- Hot wallets are easier to set up and access; however, they cannot be accessed if you do not have an internet connection.
- These wallets can be used to pay for online purchases.
- Hot wallets allow faster transactions, which makes them ideal for short-term wealth storage.
- Setting up a hot wallet is usually free of cost.
- Hot wallets are easier to use.
- Since they are online, therefore, they present a certain security threat because it is relatively easier to hack an online wallet.
- Any technical glitches or malfunction in technology could damage your online wallet.
- These wallets are kept online and therefore are more secure as compared to hot wallets.
- Cold wallets are ideal for long-term storage of wealth as they are more secure.
- These wallets are not free to set up. You will probably have to buy a device that may cost as much as $80 or even more.
- If your device gets stolen or lost, you will lose all your wealth and identification information.
- They do not allow quick transactions; most of the cold wallets have to be stored in a safe place such as a bank vault or a home safe, which means it takes times to fetch cold wallets and this prevents you from carrying out swift transactions.
- Cold wallets do not allow you to make online transactions.
Hot wallets – cons
Type of hot wallets
These wallets are portable and are in the form of an app that you have to download on your mobile phones. However, if you lose your phone not only do you lose your money but your identification information becomes accessible to anyone who gets the hold of your device.
These wallets are stored in clouds, which means, you can access them from any device and location. However, these present a security risk as they are easier to crack for hackers and may get damaged due to other tech failures.
Cold wallets – pros
Cold wallets – cons
Types of cold wallets
As the name suggests these wallets allow you to store your information on a piece of paper that you can keep in your own wallet. You can either print the information out on a paper or manually write it down.
You will have to buy a hardware device to store your information on them. These devices usually have a USB port that allows you to connect them and transfer information.
The type of wallet you should use completely depends on your requirements. If you are on the go and want fast transactions then hot wallets are more suited. However, if you need to keep a large wealth in one place for a longer period of time you may need to store it on a more secured location such as a cold wallet.