Hot vs Cold Wallets

The terms “hot” and “cold” are used to describe the online connectivity of a Bitcoin wallet, and by extension, its risk factor.

The difference between the two is simple. A hot wallet is constantly connected to the internet with the private keys loaded ready for use. For this reason a hot wallet is riskier because a hacker can theoretically access the private keys if they find a vulnerability. Hot wallets make it easy to do transactions quickly and on the go. Web, smartphone, and to a certain extent, desktop wallets can all be considered “hot” wallets.

A cold wallet is not connected to the internet and the private keys are offline. Sometimes I hear people use the term “offline wallet” interchangeably with “cold wallet”. Cold wallets are therefore safer because hackers would have a very hard time accessing your private keys.

Some cold wallet systems need to connect in order for transactions to be made. Others allow transactions to be signed completely offline and subsequently broadcast it to the Bitcoin network (without connecting the private keys).

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Hardware (USB) and paper wallets are popular cold wallet systems.

Now how to choose the Bitcoin wallet?

The first thing you need to know is that different people will use different Bitcoin wallets for different purposes. For example, if I need to store a large amount of Bitcoin safely I will use a different wallet than if I just want to have some small Bitcoin change to pay for a cup of coffee. Usually, wallets vary on a scale of security vs convenience and you need to decide where you want to be on that scale, so you should consider following points before choosing a Best Bitcoin Wallet.

Reputability of the Wallet

Even before looking into its price or features, reputability should be one of the most important considerations. You can do that by joining forums that talk about bitcoin. This will be the best way to gauge the reputability of a wallet and if there is not much information about the wallet that you are going to choose then you should not consider about that wallet.

Ensure that wallet is secure

Before choosing a site for your wallet consider the security of the site, see either it is HTTP or https secure site. Choose the site if it is https secure otherwise, don’t consider of saving your bitcoins there then there will be sworn chances of losing all of your bitcoins. When thinking about security, you also need to consider two-factor authentication. Otherwise, someone might just hack your account, and you may never know about it.

Private Key Status

If you are using Bitcoin wallet the site must give you the private key, private key consist alphanumeric code that you will use for the transactions of coins. If you don’t have the private key and someone else holds it then your Bitcoins are not is safe hands. With the private key, you can move bitcoin at will.

The Multisig Option

A good wallet should come with a multi-signature (multisig) option. This is an industry proven method that will keep hackers away from your wallet.

A Multisig, in its simplest terms, means a transaction requires the approval of several parties. While a hacker may be able to acquire your approval details, it is unlikely that he or she will spend time looking for all the others.

It should be Transparent

If you are not a tech guy, it is important for you to follow guidelines related to bitcoin in this way you will get to know how much transparent the wallet is. This transparency helps wallet users understand how the provider secures their bitcoins. For instance, they should be open about how often they update the source code. Besides that, they should make their code available to the public so that it can be scrutinized for leaks.

The level of anonymity

One of the reasons people use bitcoin is because it offers them anonymity. A good bitcoin wallet should require the least possible amount of registration data from you. If a wallet asks for too much information, it might just be trying to harvest as much data from you as possible.

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Staff Writer

Author and Staff Writer at BitcoinHub. Writing about the latest developments in the Bitcoin and Cryptocurrency industry.

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