“Wallet” might seem old-school if you’re the high-tech type who has already jumped to using your phone to pay for most transactions – a simple swipe and you’re through the checkout and on your way… but wallets have still found a niche in the modern world, and they’re actually growing. Not the leatherbound, always full of old receipts kind, though – nope, we’re on e-wallets.
Now, we’re not saying e-wallets are new… but with cryptocurrency skyrocketing? They’ve got a definite foothold. But for those less-than-familiar with this space, perhaps some of the terminology seems daunting.
Starting at the beginning, we’ve got hot wallets and cold wallets. Not the most self-explanatory titles! But if you’re going to get into any kind of crypto, you’ll need one and you’ll need to know the difference… so let’s dig into them.
What’s A Hot Wallet?
Hot wallets are, at a basic level, a cryptocurrency wallet that has a permanent connection to the internet. Their interfaces vary, but on the whole, you can check out how many tokens you’ve got stored and you can enter your personal info to send transactions as and when you need to. Hot wallets are instantly accessible and they hold your crypto keys, keeping you anonymous while allowing you to use those funds as you’d expect.
Generally speaking, hot wallets are used for everyday transactions. Imagine that you’re buying something online using crypto – you’d turn to your hot wallet, enter the info, and access your account through it. You can then buy the item, just as you would with a traditional payment method.
Alternatively, imagine you’re diving into online games, like poker or something similar – but you don’t want to use a traditional bank card for security reasons. Lots of online casinos now accept crypto payments, meaning that you can link up your wallet to an option like Ripple Casino by simply keying into your hot wallet and linking it to the site. From there, all your transactions should run super smoothly. If you win? The money will go straight into your wallet, usually much faster than it would to a traditional bank! There’s a whole lot of fun to be found with this approach, especially taking into account the crypto welcome bonuses.
The simplicity and accessibility of hot wallets are what make them so popular, and loads of people turn to these, especially for their first forays into the crypto space. But! They have some drawbacks… and to better understand those, let’s check out a cold wallet next.
What’s A Cold Wallet?
Cold wallets – if you’ve not yet guessed by their name – are those that aren’t connected to the internet all the time. In fact, you’re usually looking at an actual piece of hardware here, where you’ll have something like a USB device that you can plug into your computer when you’re ready to use it – but which is usually stored somewhere else. So let’s imagine you’re at the casino again, but with a cold wallet, you’ve got to go fetch your USB (it’s recommended you store it away from your computer) and plug it in before you can get going – and you’ve got to remember to eject it when you’re done.
Basically, you can only use the wallet when the device is physically linked up with your computer. That might sound less convenient… and it is! But the point is security. Hot wallets are often the weak link in the network of crypto because they may use software that can be hacked… and if someone hacks your hot wallet, they get access to those all-important keys and can steal your crypto.
Here we hit one of the drawbacks of crypto. Take traditional finance for a second – if someone hacks your bank account or steals your card, the bank will cover you and they can track where the money went in many cases. They’ll recoup any losses. Unfortunately, though, that’s not the case with crypto; it’s not traceable, and it’s not backed by a government… so if something goes wrong, you’ve lost the money, and there’s no recovery method.
That’s why security is so fundamentally critical when it comes to safeguarding your crypto, and that’s where cold wallets shine.
Which To Pick?
There are lots of ins and outs to this question and many variables you’ll have to consider, like how often you need to access the funds, how much money you’re storing, how concerned you are about fraud… but ultimately, many people find that the best of the options is – both.
Your hot wallet should hold a small amount of funds, ready and waiting for you to use at your favorite store, in a casino, or for any other purpose online, while a cold wallet can be set up to store the bulk of your money safely offline, where it’s far less accessible to hackers.
The drawback of this approach? Well, e-wallets generally cost money, and if you want two kinds of storage, you’ll be paying twice. That said, a lot of people who are into crypto find that’s worthwhile for the peace of mind they get, knowing that their funds are safe – while they can still enjoy the convenience of using their crypto without having to fetch a physical device and plug it in every time they want to play a game or make a purchase.