What is a Crypto Wallet?

date_range January 27, 2023
person Magic Square

Crypto wallets store users’ public and private keys while providing a user-friendly interface to manage crypto balances. They also facilitate cryptocurrency transfers on blockchains. Some wallets allow users to carry out certain actions with their crypto assets, such as buying, selling, or interacting with decentralized applications. There are two primary types of crypto wallets: cold wallets and hot wallets.

Definitions of Hot & Cold Wallets

Cold wallets, also known as offline wallets, are not connected to the internet, making them a much more secure option as they cannot be accessed or hacked by cybercriminals. Generally, these wallets are stored on physical devices such as USB drives or hardware wallets, which adds another layer of protection. 

Hot wallets are connected to the internet and are consequently more vulnerable to attack, yet more convenient, allowing users to access their funds and make transactions from any place with an internet connection. These wallets are usually stored on smartphones, computers, or cloud-based servers.

Key Differences Between Hot & Cold Wallets

The primary differences between cold and hot crypto wallets are their storage capacity and level of control individuals have over their funds. In terms of control, individuals with cold wallets have complete authority over their private keys and can access their funds without relying on a third-party service. Meanwhile, users with hot wallets may need to employ the services of a third-party provider, such as a crypto exchange, to access their funds. This may be advantageous but also means that individuals do not have full command over their funds.

To sum up, the primary differences between cold and hot crypto wallets are their level of security, and the amount of control users have over their funds.

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