Cryptocurrency Wallets: Hot vs Cold Storage

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Investing in cryptocurrencies is very risky, not only because of the high volatility of these relatively new financial instruments but also because of the many security risks associated with holding crypto. The fact that cryptocurrencies don’t physically exist, beyond their native blockchains, means that they are stored in digital space at all times, which makes them a very attractive target for all sorts of scammers and cyber attackers.

That’s why crypto wallets have been invented, to enable traders to securely store their private keys with the help of storage solutions specialized for keeping crypto safe.

Let’s take a detailed look at the various types of crypto wallets and find out how they keep crypto beyond the reach of hackers.

What Are Crypto Wallets?

Crypto wallets are storage solutions that are created to keep the private keys to your crypto secure. Your private keys are the gateway to your crypto assets and if someone manages to get hold of those keys, they can access and steal your funds. Various types of crypto wallets implement a wide range of security measures to keep private keys safe.

Wallets are generally divided into hot and cold storage solutions.

Hot Wallets

Hot storage or hot wallets are all crypto wallets that rely on a constant internet connection to operate. These wallets are divided into web wallets, desktop wallets, and mobile wallets. It’s important to note that a single wallet can have multiple versions of their software, compatible with both web wallet and mobile wallet format, or desktop and mobile.

These wallets can implement a wide range of security features in order to keep your private keys safe. Passwords, passphrases, recovery phrases, anti-phishing protection, and two-factor authentication are some of the key security measures used by hot wallets, which make it extremely difficult for cyber attackers to access them.

Web Wallets

Web wallets are only accessible through an internet browser. You need to go to the wallet provider’s web address and enter your user credentials to access the platform. These wallets don’t require users to download and install any programs on their devices and they are often custodial clients, which means that your private keys are stored on the wallet’s central server or website and it’s protected by your password and seed phrase. However, some web wallets are non-custodial and they don’t store private keys on company servers, which is generally considered more secure.

Desktop Wallets

Desktop wallets are only accessible through PCs or laptop computers and they require users to download the wallet software to their device and install it. The wallet is then run just like any other program, from the desktop of your computer.

Desktop wallets are usually considered more secure than web wallets because they are always non-custodial and the private keys are kept on your computer and not on the wallet provider’s server. This means that if the wallet’s website or server gets hacked, your private keys are still safe because they are on your PC.

Mobile Wallets

Mobile wallets come in the form of specialized smartphone apps that are downloaded and installed on your mobile device. These wallets are also non-custodial, giving you control over your private keys, which means the key thing you need to worry about is keeping your phone safe from potential hacks.

Mobile wallets and desktop wallets are as safe as the device you’re using them on is safe, that’s why it’s highly advised not to click on any unverified links and be aware of potential scams.

Additionally, top-quality hot wallets like Zelcore, which is both a desktop and mobile wallet, come with numerous security features such as the new D2FA anti-keylogger protocol that makes it impossible for cyber attackers to access your wallet even with a keylogger virus.

Cold Wallets

Unlike hot storage, cold wallets don’t rely on an internet connection to store your private keys. The fact that these wallets aren’t connected to the internet is one of the reasons they are considered more secure than hot wallets, but actually using a hot wallet is just as secure as using cold storage, if you choose the right wallet with top of the line security measures like Zelcore.

Cold wallets are generally more suitable for storing high volumes of crypto that aren’t frequently accessed because accessing your cold wallet takes more time than just opening your hot wallet and sending assets to a third-party address such as a crypto exchange platform.

There are two types of cold storage: hardware wallets and paper wallets.

Hardware Wallets

Hardware wallets come in the form of specialized USB devices with state-of-the-art encryption methods for storing private keys on them. These devices don’t require an internet connection while storing your private keys and they come with all the security measures included in hot wallets, with additional safety features for combating manual hack attempts.

The only time a hardware wallet is connected to the internet is when you’re transferring funds to or from the device, but the internet connection never really reaches your private keys, because the wallet firmware creates a barrier between the connection and your private keys.

Paper Wallets

A paper wallet is an old-school crypto storage method. It’s literally a piece of paper with printed public addresses and private keys on it. The keys are printed both in alphanumeric and QR code form, so you can easily scan the keys with a third-party wallet app and import your paper wallet balance.

While paper wallets definitely can’t be hacked, they might get torn or otherwise damaged. If you accidentally spill some liquid over a paper wallet it can become entirely useless and your funds will be lost.

Conclusion

All types of crypto wallets tend to provide strong security for private keys, but in the era of massive cyberattacks, only a selected few crypto wallets really live up to the task. That’s why you should always look for a crypto wallet that uses multiple encryption methods and thorough security protocols to ensure your private keys are safe at all times.