Hot wallets, sometimes known as online wallets, are wallets on computers, phones, or tablets that generate private keys. Private keys to your coins are generated on these internet-connected devices using hot wallets.
This wallet type does not store the cryptocurrency’s private key. Exchange wallets are custodial accounts provided by the exchange for users to deposit and withdraw funds. Investor money may be lost if the exchange is hacked. The phrase “not your key, not your coin” is frequently used in cryptocurrency forums and groups.
Weak security measures in a weak hot wallet, on the other hand, may result in funds being stolen. Strong passwords, two-factor authentication, and safe Internet surfing should be considered as absolute minimums.
Small amounts of cryptocurrency or cryptocurrency that are actively trading on an exchange and treated like a checking account should be kept in small wallets.
A cold wallet is not connected to the Internet, so it’s less vulnerable to attack. These offline wallets or hardware wallets keep a user’s private key on something that isn’t connected to the internet and include software for investors to view their portfolio without putting their secret key at risk.
Paper wallets hold both public and private keys printed on a sheet of paper. You can find these wallets at specific websites designed for this purpose. Many users laminate their paper wallet for extra protection before storing it in a safe or deposit box at their bank.
Hardware wallets are USB drive devices that store a user’s private keys securely offline, away from potential viruses. By storing private keys offline, hardware wallets provide added security compared to hot wallets because the keys never come into contact with a network-connected computer or software.
The most secure manner to keep your bitcoin or other cryptocurrencies is in a cold wallet. However, they need more technical understanding to set up.