Hot vs. Cold Cryptocurrency Wallets - Everything You Should Know

In the world of cryptocurrencies, securing your digital assets is your own responsibility. That’s what decentralized means: there’s no central authority behind it. This implies there’s mostly no one to censor your transactions, but also, there’s no one to recover your password or your private keys for you. And you’re in charge of choosing a reliable crypto wallet.

Wallets come in various forms, but they can be broadly categorized into two types: hot wallets (connected to the Internet) and cold wallets (offline). The second type is considered more secure, but the truth is that you’ll have to connect anyway to handle your coins. Let’s take a quick dive into the topic.

Hot Wallets: Keeping Your Coins Close

Hot wallets are like a digital version of your physical wallet. They’re connected to the Internet and allow quick and easy access to your cryptocurrency holdings. These wallets include online wallets, mobile wallets, and even exchange wallets.

• Web Wallets:They’re cloud-based platforms, accessible through a web browser in the form of a website (like Freewallet) or an extension (like MetaMask). They offer convenience and accessibility, making them suitable for day-to-day transactions. However, their constant connection to the Internet could make them vulnerable to hacking. Especially if you don’t have the private keys, only an account on their websites.
  

• Mobile and Desktop Wallets: These are applications designed for managing cryptocurrencies. Mobile wallets are handy for on-the-go transactions, as they are always with you. Just like online wallets, they're susceptible to some online threats, particularly in outdated and unsafe devices. It's crucial to keep your device secure by using security software. Examples of mobile and desktop wallets are Coinomi, Exodus, and the main Obyte wallet.

  
  

• Exchange Wallets: When you use a cryptocurrency exchange, you often get an associated wallet inside the same website, for your account. While this simplifies trading, they won’t give you the private keys, because they always maintain custody of all funds. So, if the exchange gets hacked, your funds could be at risk. The biggest crypto hacks of all time include several attacks on exchanges.

  
  

We could say that hot wallets are perfect for small, everyday transactions and easy access. However, if you don’t have their private keys, they should only hold the amount of cryptocurrency you need for immediate use, much like the cash in your physical wallet.

Cold Wallets: Locking Up Your Coins

Cold wallets, on the other hand, are your cryptocurrency vaults. They’re not connected to the Internet, providing an added layer of security. The two main types of cold wallets are hardware wallets and paper wallets.

• Hardware Wallets: they’re physical devices designed solely for storing cryptocurrencies. They resemble USB flash drives or cards (mostly) and are highly secure because they store your private keys offline, where hackers can’t touch them. You only connect them to the Internet when you need to make a transaction, reducing the risk of online attacks significantly. Popular brands of hardware wallets are Ledger and Trezor.

  
  

• Paper Wallets: A paper wallet is as low-tech as it gets in the world of cryptocurrencies. It involves printing (or writing, engraving, etc.) your private and public keys on a piece of paper (or any other physical material). Since they’re offline, paper wallets are immune to online threats. However, they require careful storage and protection to prevent physical damage, theft, or loss.

  
  

Cold wallets are ideal for long-term storage and safeguarding large amounts of cryptocurrency. You can deposit as much as you want to these addresses without the need to connect them to the Internet. The connection is required only for withdrawals. They're like your savings account, ensuring that your assets remain safe even if the Internet faces turbulence.

Hot and cold wallets in Obyte

Choosing between hot and cold wallets depends on your cryptocurrency usage. Hot wallets are akin to your everyday spending cash, while cold wallets could be your savings accounts. For maximum security, consider using both. We have it covered in Obyte: you can use hot and cold addresses (wallets) to handle your funds here.

The main Obyte wallet is a mobile and desktop app available for iOS, Android, Windows, Linux, and macOS. It’s mostly online (hot) if your device is connected, but you keep your own private keys all the time. You could also delete the app while preserving the private keys (or a backup) and deposit address, and it’d automatically become a cold wallet.

On the other hand, more hot wallet options for Obyte include the internal wallets on the exchanges Kaiserex, Coinspot, and Bittrex. In these cases, you won’t get the private keys, and you’ll need to rely on the exchange’s security. It’s advisable to send them only the funds you want to quickly exchange for other assets.

Using textcoins

There’s another cold wallet option in the Obyte ecosystem: textcoins. They’re a string of twelve random words containing funds (like a private key) or a simple link in the email or chat. Someone with an Obyte personal wallet can create and give away textcoins to anyone, even if they don’t have any crypto wallet or Internet.

Textcoins look like this:

together-orange-pelican-tooth-fox-lucky-half-cup-window-coil-radar-pen

Or like this (in your email or chat):

“Obyte user beamed you money. Here is your link to receive 0.1 GB (≈1.53 USD): https://obyte.org/#textcoin?over-arrive-together-great-fold-comic-jeans-dice-soon-corn-steel-damage.”

The sender only needs to enter the section “Send” in their Obyte wallet, choose the asset to send, set the amount, and pick “To Obyte address/email /username” or “Share via message”. After creation, you can also keep the textcoin for yourself, as a form of a safe paper wallet outside the Internet. To claim a textcoin, the only required thing is the main Obyte wallet (Receive tab - Claim funds using textcoin) and/or a link like the one above.

Which wallet should you use?

That depends entirely on your intentions and usage. For day-to-day transactions, hot wallets are handy, offering convenience and accessibility. However, don't store large amounts of cryptocurrency in them. Instead, transfer excess funds to a cold wallet for safekeeping.

If you want to avoid using complex crypto addresses, textcoins are for you. You’ll just need emails, chats, or a literal piece of paper to send and receive coins. The Internet connection and the main Obyte wallet will be needed only for withdrawals.

Now, whichever wallet you choose, remember: in crypto, security is paramount. Make sure to implement strong security measures like two-factor authentication and regular backups to protect your digital assets.