If you have cryptocurrency, you will need somewhere to store it and keep it safe. After some research, you’ll quickly find that there are both hot and cold cryptocurrency wallets. But what exactly are they and how do you know which one is right for you? Both wallet types will protect your public and private keys or the unique letter and number combination that authorizes your cryptocurrency transactions.
However, the right type of wallet depends on various factors such as how much crypto you’re currently holding in your crypto accounting software, what your security preferences are, and how accessible you need your funds to be.
Understanding the main differences between hot and cold wallets
The primary difference between hot and cold wallets is that hot wallets are accessible via the internet through your phone or computer while cold wallets offer offline data storage on a hardware device. Let’s take a look at some different factors that can help you make your decision.
Because cold wallets aren’t linked anywhere online, this reduces the chance of hacks or online theft. Cold wallets only connect to your online account when they’re physically plugged in or if you’re using a unique QR code. Even though the majority of hot wallets have security measures to keep your funds safe, they aren’t as strong as those of cold wallets.
Consider that hot wallets are accessible from anywhere. In the case that your phone or laptop is stolen, your funds could be at risk. All in all, cold wallets are the more secure choice and can give you peace of mind.
While cold wallets are more secure, hot wallets are more convenient. Hot wallets are connected to the internet which means you’ll be able to access them for regular transactions. Cold wallets, on the other hand, are offline and require an additional step to be accessed from your phone or computer.
There are different use cases that can guide your decision on hot versus cold wallets. If you’re someone who trades often and needs to have convenient access to your funds, hot wallets are typically the better option. However, for long-term storage, cold wallets are usually the better option.
While there isn’t a huge difference in price between the two in the long run, price is still an important factor to consider. Hot wallets are usually free and some will even pay you interest for storing your crypto. Cold wallets, on the other hand, typically require that you purchase an external device that can cost you anywhere from $50 to $250.
There’s no one-size-fits-all solution when it comes to hot versus cold crypto wallets. Using the above factors can help you make your decision, and in many cases, a combination of the two wallet types is ideal.
See how Founder’s CPA can help
Whether you need help finding the right crypto accounting software or you’re looking for help with your CFO needs, our team at Founder’s CPA is here to help. See why over 250+ startups and small businesses rely on our help every year. Take advantage of our free consultations and contact us today.