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Cryptocurrencies have exploded in popularity over the last few years, with countless new and exciting digital currencies hitting the market. Many people are choosing to invest in this new age of money. While promising, cryptocurrencies can be risky if you jump in without taking enough time to learn about them first.

Storing your cryptocurrencies is a big part of the draw to them, and the digital wallet you use is crucial to the security of your money. Of course, though, when people talk about things like hot and cold wallets, it can be hard to understand what they’re talking about. Let’s take a look at these different methods, giving you the chance to use your wallet safely.

Cold vs. hot wallets

The difference between hot and cold wallets is quite simple, though this doesn’t mean that they offer benefits. You can find a breakdown of these two methods below, with their main advantages and uses later in the article.

  • Cold Wallets: A cold wallet is a Bitcoin or other cryptocurrency wallet that will spend most of its time offline. It will be connected to the internet to sync up with the blockchain it is part of but will remain disconnected immediately afterward.
  • Hot Wallets: Hot wallets spend all of their time connected to the internet, keeping them up to date and enabling live trades to be made with the funds inside them.

The benefits of a cold wallet

Bitcoin wallets can be volatile things, with a vast range of different options available and varying levels of security across the board. It’s well worth understanding the benefits of a cold wallet before you start using one.

  • Funds are kept secure because the wallet is rarely connected to the internet, limiting the windows that criminals use to steal the currency from inside.
  • You can still look at past transactions and review your funds with a cold wallet, making them useful.
  • Cold wallets can be stored on old devices that don’t need much processing power to scour the blockchain each time they are opened.

What are cold wallets used for?

In most cases, cryptocurrency owners will use cold wallets to ensure that the money they are storing remains secure. For those that have to invest in cryptocurrencies and want to keep their money safe in the long run, this is ideal. Of course, though, this does come with some downsides that one should consider.

To start off with, having your wallet offline means that you can’t trade using the bitcoin or other cryptocurrency you have inside it. Alongside this, though, it also means that your wallet won’t always reflect the transfers that have occurred since your wallet was last online.

The benefits of a hot wallet

Hot wallets also come with their own set of benefits, making them useful for a select range of tasks that many crypto enthusiasts will want to get involved with. General security needs to be strictly maintained when you’re dealing with a hot wallet.

  • Funds will be instantly tradable when you have them stored in a hot wallet, giving you the chance to use them whenever you like.
  • Hot wallets will always be up to date with the changes that have occurred on the blockchain. This means that you always have an idea of where your money is.
  • Hot wallets are more convenient than cold wallets, providing you with a faster way to access and trade your funds.

What are hot wallets used for?

Hot wallets are typically used by those who want to trade their cryptocurrencies without having to wait for long updates. Those using hot wallets will usually work hard to maintain their network and computer security in order to ensure the safety of their funds, though many new users will assume that a hot wallet is the only option.

Hot wallets unquestionably come with some downsides. Online attacks will be able to gain access to a hot wallet much easier, making it possible for your funds to be stolen if you get a virus or suffer a different malicious attack.

Keeping your Bitcoin wallet safe

Keeping your Bitcoin or other cryptocurrency funds safe is about more than simply keeping yourself online or offline. You can take several steps to make sure that you are always looking after your online funds, and you can find some tips below that should make it much easier for you to keep your crypto money safe.

  • Network/Computer Security: Your computer and the network that hosts it should always be as secure as possible. Anti-virus and anti-malware software can help you with this, but you should also consider how you use your machines. Most of the viruses people get in the modern world come with downloads from suspicious sites.
  • Dedicated Machines: Having a dedicated machine for your cryptocurrencies can help you to keep them far more secure than keeping them on the device you use in your day-to-day life.
  • Updates: One of the main differences in Bitcoin wallets that you find around the web is the level of security they offer. It would be best if you always kept your wallet up to date, along with making sure that you’re using a wallet that doesn’t have any backdoors. Most options for bitcoin are very secure, but this doesn’t mean that you can become complacent.
  • Keep It Secret: Most people wouldn’t boast about the money they have in their bank account, and the same should be the case for cryptocurrency wallets. While it can be tempting to talk about this part of your life, it’s usually best to keep the status of your wallet to yourself to avoid prying ears.

As you can see, security is a fundamental factor when considering hot and cold cryptocurrency wallets. There have been many major thefts of this type of money exchange over the last few years, making it well worth spending the time and money to keep your funds safe. Of course, though, a big part of this will revolve around the way you use your computers.

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Christopher Gondek Co-founder of OriginStamp.com

"I really, really like the article. It's very clear and well written."

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