Hot Storage vs Cold Storage: How to Choose the Best Encrypted Storage Solution?

Whether for security or convenience, choosing the right encrypted storage solution can help keep your assets safe. This article will introduce hot storage and cold storage of encrypted wallets, compare their advantages and disadvantages, and help investors choose the most suitable storage option for them.

After purchasing cryptocurrencies, deciding how and where to store your assets is a very important step. Unlike physical currencies, cryptocurrencies run on a blockchain and therefore require a digital storage system called a wallet. Like cash wallets, crypto wallets allow you to hold and transfer funds. Crypto wallets consist of public and private keys, which are strings that allow holders to receive and transfer their crypto assets.

Crypto wallets have two types of storage options: “hot” storage and “cold” storage. Hot storage is an application or platform connected to the internet, while cold storage is offline storage, usually via a physical device such as a USB stick. While both hot and cold storage systems allow individuals to access their digital funds, they differ in user experience and level of security.

Which option is right for you comes down to personal choice, or it could be a combination of the two, depending on what you want to do with your cryptocurrency in the long and short term.

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Hot vs Cold Storage: Pros and Cons

Hot storage refers to an application or platform connected to the internet that allows you to manage your cryptocurrency holdings. Many of these services are free and available on a computer or mobile device. Some examples of hot wallets include the following software:

  • MetaMask: A popular browser plugin that acts as a wallet for Ethereum (ETH) and other ERC-20 tokens.
  • Exodus: Desktop and mobile software that connects to the Exodus decentralized exchange and supports over 150 cryptocurrencies.
  • Mycelium: A full-fledged, Bitcoin -centric mobile app with native transaction options.

Some cryptocurrency exchanges, including Coinbase ( COIN ), Gemini, and Binance, also offer wallets for seamlessly buying, trading, and selling cryptocurrencies on their platforms.

Advantages of thermal storage:

  • User-friendly: Because they are always connected to the internet, these platforms allow you to easily store and access your cryptocurrencies from anywhere.
  • Fees: Most hot wallets are free to use.
  • Convenience: If you use a hot wallet linked to a specific exchange, you can easily interact within that ecosystem.

Disadvantages of hot storage:

  • Security: While hot wallets are generally secure, they are connected to the internet and are therefore more vulnerable to hacking.
  • Accessibility: Due to their need to be connected to the internet, some wallet functions may be restricted in certain countries or jurisdictions, depending on local laws.

Cold storage, on the other hand, keeps users’ private keys offline, thus adding an extra layer of security from potential hackers. While a hardware wallet is not an absolute requirement to move your cryptocurrency to cold storage, most people will opt for a hardware solution such as:

  • Ledger : A USB-like device that allows users to buy, exchange and stake over 1,000 cryptocurrencies.
  • Trezor: A small plug-in device compatible with over 1000 cryptocurrencies, available on both computer and mobile.

Cold storage allows users to have complete control over their private keys and assets, but is also more expensive.

Cold storage advantages:

  • Portability: Cold storage solutions are typically small plug-in devices that can be taken anywhere in the world and easily logged into decentralized applications.
  • Security: Your private key never leaves the device, and transactions are signed locally, greatly reducing the risk of a cyber attack on the device.
  • Autonomy: Cold storage allows you to be the sole custodian of your crypto assets, eliminating third-party applications from your storage experience.

Cold Storage Disadvantages:

  • Price: Hardware wallets cost between $79 and $255, more expensive than online wallets.
  • Transfers: Transfers between cold storage devices are slightly more troublesome than hot storage wallets.

Hot Storage vs Cold Storage: Which Is Safest?

While there have been several high-profile hacks related to hot storage wallets, security measures continue to improve. In September 2020, a security breach at Singapore-based exchange KuCoin saw approximately $281 million worth of crypto assets destroyed, but most of the funds were later recovered. In July 2019, Japanese cryptocurrency exchange Bitpoint lost about $32 million in user funds due to a hack. User data on the cold storage system Ledger was compromised in July 2020, but no user funds were stolen.

In the end, there are a number of factors to consider when deciding whether to use a cold or hot wallet. Many people use both cold storage and hot storage options to create a safe and seamless trading experience, and most exchanges, including Coinbase, keep user funds in various cold storage options, which Coinbase calls “crypto”. The Gold Standard for the Safety of Monetary Assets”. Generally speaking, experts recommend storing large amounts of cryptocurrencies or cryptocurrency assets that users do not need to access frequently in cold storage.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/hot-storage-vs-cold-storage-how-to-choose-the-best-encrypted-storage-solution/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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