See the explosive growth in recent years as more and more of the market enters in with commitments to investment in digital assets. Once its popularity surges, cryptocurrency has a tendency to spread. Safe custody of one’s investments falls at the bottom end of one of the very basic aspects of trading in cryptocurrency that is, utilizing the proper form of a wallet for it.
There are two types of wallets through which you can place your cryptocurrency, which are a hot wallet and a cold wallet. The difference between these two has some pros and cons associated with each, so their knowledge will come in handy in making the choice on which one is most suitable for your trading activity. As we continue reading through this blog post, we will look at the advantages and disadvantages of both types of wallets so you are well-guided on the best cryptocurrency wallet for your trading activities.
What are Hot Wallets?
These are online-connected wallets; it is easy to access your coins immediately. Hot wallets are mainly used by those who are always trading. There are further classifications of hot wallets, which include;
There are two types of Hot wallets:
It can be installed on a computer or mobile phone, and access as well as the handling of currencies is very easy.
Web Wallets: They can be accessed from your browser, so they are always ready to use and provide high flexibility in trading cryptocurrencies.
Benefits of Hot Wallets
Rapid Access: Since the hot wallets access your internet, this provides quick access to your money. In cryptocurrency trading, one’s time and speed are considered first.
User-Friendly: As a matter of fact, hot wallets are designed in such a way that they are user-friendly. This being the case, even the freshest of cryptocurrency traders can also benefit from the services offered.
For active traders: For active traders who need trades to be executed promptly, a hot wallet can be conveniently used.
Disadvantages of Hot Wallets:
Prone to Hacking: Hot wallets, being internet-related, are always prone to hacking. When you expose your private keys or in the case of wallet security, you may lose the cryptocurrencies.
Not meant for long-term storage: The hot wallets are not suited for long-term storage as these are openly exposed to the internet throughout the period of time
What are cold wallets?
By using simple terms, a cold wallet is generally termed as being an untethered-to-the-internet wallet within cryptocurrencies; that’s rather named offline wallet as it contains a lot of cryptocurrency funds on which the wallet continuously operates without even accessing the internet for long.
Hardware wallet: A true physical device that stores the private key off the shelf, uses the fund, or the funds. A computer needs to connect a device for the use of a fund.
Paper Wallets: A paper wallet is a physical piece of paper that contains your private keys in addition to your public addresses. It also comes as one of the safest types of storing cryptocurrency since they are inaccessible through the Internet.
Advantages of the Cold Wallet
Security: As the wallets aren’t web-based, the possibility of hacking is not so extensive and that makes them ideal for storing any kind of cryptocurrency in the long term.
Malware Protection: The reason is, it doesn’t interact with the web, meaning malware/phishing attacks specifically targeted towards a large number of cold wallets won’t be successful.
Good for Long-Term Storage: Cold wallets are kept best by cryptocurrency traders who hardly go and hide their digital currency in the long run.
Drawbacks of Cold Wallet:
Not That Handy for Trading: Hard wallets are rather not that handy for doing your daily trade. You will be required to plug the wallet in a computer or other gadget should you opt to withdraw some cash, which is a very time-consuming process.
Theft or Loss: When your hard wallet loses the device carrying it and you lose your paper that carries the keys in a paper wallet, then you would never get it again, including the digital cash.
Hot Wallets vs. Cold Wallets: Which one to use for cryptocurrency trading?
It is your preference, after all, as a cryptocurrency trader. Here is a quick guide to make it easy:
If you happen to be an active trader, then the choice would be a hot wallet. For those cryptocurrencies, it means quick access; therefore, you can quickly make fast trading decisions. If you buy, sell, or trade them many times, a hot wallet gives you the convenience that you require.
Such wallets are meant to be enjoyed in the long run, as the security they afford cannot be beaten. If you will be holding your cryptocurrency for a longer period of time and would only have a few instances where you need access, then it is much safer in the cold wallet.
Some users even balance out their usage with hot and cold wallets. Active trading would be best in the case of a hot wallet, whereas in cold wallets, one has stored most of his cryptocurrencies.
Final words on the choice of the right cryptocurrency wallet
The most significant criterion in terms of cryptocurrency trade and safekeeping of your digital money is the cryptocurrency wallet. At the same time, although online wallets have two or three harmful effects because they are so friendly and convenient in use, online wallets are that type with more chances of being attacked by a hacker.
Unlike this, when using cold wallets, stronger protection can be delivered, but often it looks like something rather awkward for a trader to use these wallets during every-day trade.