What are the main differences between cold wallets and hot wallets?

Cold wallets, also known as offline wallets, are completely isolated from the Internet. It is like a piggy bank placed in a safe, without any contact with the outside world network, greatly reducing the risk of being attacked by the network. For example, common hardware cold wallets, such as Ledger Nano S, Trezor, etc., are not connected to the Internet when used and are only temporarily connected to authorized devices when transactions are required.

Hot wallets are wallets that keep online online, similar to the online bank account we use every day. It can access the network at any time, making it convenient for users to operate quickly. Hot wallets like Coinbase Wallet and MetaMask allow users to access and manage assets anytime, anywhere through their mobile phones or computers.

Due to the offline nature, cold wallets are almost never directly attacked by cyber hackers and Trojan viruses. Private keys are stored in offline devices, such as chips of hardware wallets, private keys printed on paper wallets, etc., which fundamentally eliminate the risk of stealing network channels. However, cold wallets are not absolutely safe, and hardware loss, damage or physical theft may lead to asset losses.

Hot wallets are always connected to the Internet and are easily targeted by hackers. Once the device is implanted with malware, the private key or transaction information may be stolen. For example, a hacker once used phishing to induce users to enter private keys on counterfeit hot wallet pages, thereby stealing a large amount of digital currency. In addition, if there are security vulnerabilities in the server of the hot wallet service provider, it may also cause damage to user assets.

Cold wallets are relatively troublesome when trading. Taking the hardware cold wallet as an example, you need to connect the device, enter the password, etc. before the transaction, and the steps are relatively cumbersome. When trading in paper wallets, private key information needs to be entered manually or scanned, which is complicated and error-prone. Therefore, cold wallets are not suitable for frequent transactions.

Hot wallets are extremely convenient to use. Users only need to open the wallet application or web page, enter a password or perform identity verification to quickly complete transactions. They are suitable for frequent small transactions in daily life, such as daily shopping payment for digital currency and other scenarios.

Cold wallets are suitable for long-term storage of large-value digital assets. For example, investors plan to hold digital currencies such as Bitcoin and Ethereum for a long time and store them in a cold wallet, which can effectively ensure the security of assets. When companies hold a large amount of digital currency reserves, they will often choose cold wallet storage.

Hot wallets are suitable for users with frequent transactions. For example, digital currency intraday traders need to buy and sell according to market conditions at any time, and hot wallets can meet their needs for fast trading. In addition, in the micro payment scenario, the convenience of hot wallets also makes them the first choice, such as shopping in online stores that support digital currency payments.

Hardware devices for cold wallets usually need to be purchased, with prices ranging from a few hundred yuan to a thousand yuan. For example, the Ledger Nano S costs around a few hundred yuan. Moreover, to ensure security, additional backup equipment and storage measures may be required, adding a certain cost.

The use of hot wallet itself generally requires no additional hardware cost, and most hot wallet applications or services are free to use. However, some hot wallets may charge a certain handling fee during transactions, and the handling fee varies depending on the wallet and transaction type.

The private key of the cold wallet is fully controlled by the user and is stored in the local device. Users need to properly keep their private keys, such as recovery seeds of hardware wallets. Once they are lost and there is no backup, the assets will not be retrieved.

The private key storage methods of hot wallets are diverse. Some hot wallets encrypt the private keys and store them on the server side, and users access them through passwords or other verification methods; some software hot wallets are stored on the user's device, but due to the networking of the equipment, there is a risk of being obtained by hackers.