What are cold and hot wallets and what is the difference between them?

Cold wallets, often called "offline wallets", are wallets that store cryptocurrencies in offline devices. It is like a safe in the mountains, isolating the private key from the network, greatly reducing the risk of being attacked by the network.

Cold wallet carriers are diverse, and computers, mobile phones, or dedicated hardware devices that are not connected to the Internet, such as Ledger Nano S, Trezor and other hardware wallets belong to this category.

When using it, the user generates the wallet address and private key offline, and deposits the encrypted currency into the address. The private key does not touch the Internet throughout the entire process, making it difficult for hackers to steal it. However, the cold wallet creation and transaction process is relatively complex and requires additional equipment assistance.

Hot wallets are online wallets connected to the Internet, similar to the commonly used APPs on mobile phones, allowing you to access and manage cryptocurrencies at any time. It is divided into software wallet, web wallet and exchange wallet.

Software wallets such as Coinbase wallet on mobile phones can be easily operated after downloading and installing; web wallets do not need to be downloaded and can be used in the browser; exchange wallets are closely connected to cryptocurrency exchanges, and transactions are extremely smooth.

Hot wallets have obvious advantages, fast transactions and easy operation, and are suitable for users with frequent transactions. But it also has disadvantages, because it is connected to the network and is vulnerable to cyber attacks, and private keys and cryptocurrencies are at risk of being theft.

Cold wallets are extremely secure, and offline features keep them from attacks by network hackers and malware. Private keys are generated offline and stored. If physical security is done, funds can be secured.

Hot wallets are relatively low in security, and network connections make them the target of cyber attacks. Although some hot wallets provide multi-signature, secondary confirmation and other measures, it is still difficult to compare with cold wallet security. If a hot wallet is subject to a phishing attack, the user may disclose the private key and cause asset losses.