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A crypto wallet, your bank account, or the physical wallet that you carry each day all serve the same function. They ensure the safekeeping of the resources that you have diligently acquired by navigating the financial market.
In the world of blockchains, the wallets are nothing but digital spaces for storing crypto assets. However, unlike a physical wallet that stores your money directly, a crypto wallet stores keys. The keys give you access to your assets. The keys can be public, meaning something that you share with others to receive blockchain-based assets. Some are private, which are like your individual bank account's pass code and must not be shared with anyone.
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NOTE: Crypto investments involve significant risk. Do not take the views mentioned here as financial advice. Please conduct thorough research before making any investment.
Hot and cold wallets: What you need to know
Hot wallets
Hot wallets store your private keys online. They are connected to the internet, and that makes it easier for these wallets to interact with DeFi applications.
Hot crypto wallets can be of the following types
- Computer-installed desktop wallets
- Smartphone-based mobile wallets
- Browser extension-based wallets like MetaMask
- Wallets provided by crypto exchanges
The main advantage of hot wallets is that they allow quick settlement of crypto payments. So they are great for those trying to make a profit out of rapid market changes.
They are pretty straightforward and can be used by beginners without much technical knowhow. Many of them are available for free through exchanges and are beneficial for those who do not want to pay for their crypto wallets.
Cold wallets
Cold wallets are not connected to the internet. Now, since they are not connected to the internet, they are protected against cyber crimes like phishing and malicious smart contracts.
Cold wallets can be of the following types
- Hardware wallets are physical devices that store your keys offline. They usually support storing multiple types of cryptocurrencies and are best suited for long-term investors who want security with conventional storage.
- Paper wallets are also a type of cold wallet to store your private keys. However, just as a piece of paper, they are prone to easy destruction. They are best suited for those looking for a budget-friendly storage but can ensure the device's physical safety.
- Air-gapped wallets are devices that have zero connection to the internet, unlike a hardware wallet. Here, the transfer of assets happens via QR codes or micro SD cards.
The biggest advantage of a cold wallet is that they are secure. They store keys offline and are protected against cyberattacks. With such wallets, even if the crypto exchange is compromised, your assets are safe, and hence they are suitable for long-term storage. So, these wallets are great for long-term holders and not those who want quick trades.
