Are you already an expert in digital assets or just planning to buy your first cryptocurrency? Whatever your answer, one of the first steps would be to ensure safe storage for your funds. In this guide, you'll find some useful information about cryptocurrency wallets.
Introduction to hot wallets
Today, there are numerous options for crypto storage, and hot wallets are at the peak of popularity. The range of available options means you can choose from various types on the market making it easier to find the one that best suits your needs.
What are hot wallets? Hot, or online wallets are the crypto asset storages constantly connected to the Internet. You have probably heard of MetaMask or Trust Wallet.
Trust Wallet interface. Source: TrustWallet
They help users accept, store, and transfer crypto with no complex settings, which is simple and convenient.
The importance of choosing the right crypto storage cannot be overstated, especially considering the high risks inherent in this market. That’s why a serious approach to crypto storage is so crucial.
Learn more about storing crypto in our guide.
Types of hot wallets
Let's see which types of hot wallets are available today.
Software wallets are always connected to the Internet. This means that they run as a mobile app and/or operate through a website. Such wallets store the private keys encrypted on the user’s device – a mobile phone or a computer.
Mobile wallets are typically mobile apps. This means that your cryptocurrency assets and private keys are stored directly on your phone. One of the most popular mobile wallets is MetaMask. It’s a user-friendly hot mobile wallet suitable for Ethereum.
MetaMask Wallet interface. Source: MetaMask
Web wallets are commonly web browser extensions. This makes it one of the simplest ways to interact with blockchain. A notable example is Coinbase Wallet developed by a popular crypto exchange, Coinbase.
Coinbase Wallet interface. Source: Coinbase
Custodial vs non-custodial hot wallets
There are two more big groups – custodial and non-custodial wallets. The only difference depends on who’s controlling the private keys.
Custodial wallets. You place your crypto in your custodial wallet. From this moment on, your funds and your private keys are under the control of a third party, or the custodian. Typically, this third party is a private CEX like Binance or Gemini.
Gemini Wallet interface. Source: Gemini
Such wallets provide constant and convenient access to your balance and simplified trading tools. If something happens to your funds, in most cases you can recover the loss. However, your custodian also has the authority to hold, freeze, or take other actions if something seems wrong.
Non-custodial wallets. Here, the only custodian is you. You have full control over your crypto assets and private keys. Now you can interact with a blockchain directly and trade on DEXs like Uniswap.
Uniswap Wallet interface. Source: Uniswap
However, if you lose your private keys, no one will be able to help you. The same goes in case of hacking attacks.
Choosing the right option. It’s hard to say which wallet is better. But one thing we can say for certain is that it is important to assess your experience rationally. A non-custodial wallet may be an excellent option for more experienced users. For beginners, it may be better to start with a custodial wallet. However, it is always up to you to decide which option suits your needs better.
Hot wallet security features
Here are some security tips you could use to back up your wallet:
Private keys and seed phrases. When you create a hot wallet, it generates your private keys known only to you. With the key, you gain access to your funds. A seed phrase is a unique word sequence in English. This is your password to recover access to the wallet.
Two-factor authentication (2FA). This method is already familiar to many of you. Two-factor authentication employs two forms of verification when accessing your hot wallet. The first form is a private key. The second comes in various ways like code, biometric data, or other options.
Multi-signature wallets. As for the multi-signature wallet, it requires at least two private keys to complete a crypto transaction. Multi-signature wallets are typically used for storing large sums. Therefore, multiple users hold access to such storage. The transaction cannot be completed without signatures from all private-keys owners.
Pros and cons of hot wallets
Let’s focus on the pros and cons of hot wallets.
Advantages of hot wallets:
- Good for newcomers.
- User-friendly interfaces.
- Commonly support a variety of networks.
- Commonly support a variety of cryptocurrencies.
Disadvantages of hot wallets:
- No internet, no connection to wallet.
- Susceptible to maulicious attacks.
- Risk of losing funds.
- Funds are controlled by a custodian.
Hot wallets vs cold wallets
Did you know that there’s a wallet that is almost never connected to the web? Well, there is!
Understanding cold wallets. Cold wallets are created for offline crypto storage. They look like a small device that provides maximum protection for your assets. To initiate crypto transactions from such a wallet, you need to connect it to a compatible device like a computer. Only then is it possible to receive or send cryptocurrency. Popular examples of such type of crypto wallets include Trezor and Ledger.
How a cold wallet looks. Source: Trezor
Comparing hot and cold wallets. So, which wallet to choose – hot or cold? A hot wallet’s accessibility is much higher as it enables frequent and quick transactions. A cold wallet is a reasonable solution for large sums that you don't intend to use very often.
Choosing the right wallet for your needs
For now, let’s reiterate which factors to consider when choosing a crypto wallet.
Factors to consider:
- Your experience in crypto.
- Frequency of your crypto transactions.
- Your preferred blockchains and cryptocurrencies.
- Your preferred devices.
Balancing security and accessibility. Wallet accessibility is important, but there is something even more important – crypto security. Never forget about strong wallet backup methods!
Navigating the world of hot wallets
The aim of our guide was to help you find your perfect hot wallet. When you find it, come back to purchase crypto using itez.com!
🧐 So, which hot wallet do you stick to? Share on our socials!
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This article is not investment advice or a recommendation to purchase any specific product or service. The financial transactions mentioned in the article are not a guide to action. It’s not intended to constitute a comprehensive statement of all possible risks. You should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.
