What is the difference between hot and cold wallets?

Hot wallets and cold wallets are two categories of cryptocurrency wallets that differ in terms of their connection to the internet and, consequently, their level of security.

Hot wallets are cryptocurrency wallets that are connected to the internet, making them easily accessible for transactions.

Hot wallets are typically online, and they can be accessed through various devices such as computers, smartphones, or tablets.

They are convenient for active trading and regular transactions due to their accessibility.

However, being connected to the internet makes them more susceptible to hacking, malware, or other security breaches. As they are always online, there is a higher risk of unauthorized access.

Cold wallets are cryptocurrency wallets that are offline and, therefore, not connected to the internet.

Cold wallets can take various forms, including hardware wallets (physical devices), paper wallets (physical documents), or air-gapped computers (computers that have never been and never will be connected to the internet).

The offline nature of cold wallets provides a higher level of security against online threats like hacking. Since they are not constantly connected, the risk of unauthorized access is significantly reduced.

Cold wallets are often used for long-term storage of cryptocurrencies, as they offer enhanced protection for holdings that are not actively traded.

In summary, the main difference lies in the connection to the internet. Hot wallets are online and convenient for regular transactions but may have higher security risks. Cold wallets, being offline, provide greater security and are often used for the secure storage of cryptocurrency over the long term. Many individuals and businesses use a combination of both types to balance convenience and security based on their specific needs.