Bitcoin Hot Wallet vs Cold Wallet

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Storing bitcoin in a safe and secure manner is more important than ever before. Multiple solutions are available to users to achieve this goal. For those cryptocurrency enthusiasts who prefer to take full control over their secure bitcoin storage, using a hot wallet and cold wallet is well worth looking into.

A Hot and Cold Wallet To Store Bitcoin

To illustrate the concept of a hot wallet and cold wallet, one must first understand how these two solutions are different. As the name suggests, a hot wallet is a bitcoin address users can spend money from at any given time. This wallet is virtually always connected to the internet as well, as it maintains an active connection to the bitcoin network.  

The cold wallet, on the other hand, does the exact opposite. It is not intended to be used for regular expenses, yet can still receive money at any given time. A cold wallet will not connect to the internet [directly], as it is used for offline bitcoin storage. If there is no connection between the bitcoin wallet and the internet, hackers cannot steal funds from the wallet. The hot wallet, on the other hand, remains susceptible to attack, which is why users should only store a minimal amount of funds in it.

Even though both wallets can be used to receive money just fine, it is advised to primarily rely on the hot wallet to receive funds. Once the transaction has been confirmed, the money can be moved to the cold wallet without issues. Users often keep a small portion of every transaction in their hot wallet, for regular expenses. Everything else is stored in the cold wallet, which will only be accessed during a time of need. A simple way of thinking about the two different wallets is the hot wallet is more like a checking account, while the cold wallet is more like a savings account. You want to keep most of your Bitcoins safely stored away in a cold wallet offline and have spending money in the hot wallet.

Bitcoin users think of their wallet as a way to store BTC, which is what it is designed to do in the first place. That said, a cold wallet is the ultimate storage solution for larger amounts of money. Keeping big sums of bitcoin offline at all times will ensure no money can be lost or stolen. Although this may seem like a rather extreme measure to some people, bitcoin transactions cannot be refunded or charged back. Theft or loss of the coins means there will be no way to get the money back. 

One could wonder why going to such extreme lengths is necessary to keep bitcoins safe. There is nothing inherently wrong with bitcoin wallets on a computer or mobile device by nature. Then again, most of the devices are not all that secure unless the owner takes the necessary precautions. Since most consumers are not well-versed in device security, using alternative solutions is more than warranted. In this particular case, that means setting up two separate bitcoin wallets to keep money safe.

One thing to keep in mind is how a cold wallet can be stored on nearly any device. While using a computer seems the most obvious solution – as long as it is not connected to the internet – mobile devices work just as well. Every hardware bitcoin wallet in existence acts as a cold wallet in its own right as well. There are plenty of ways and reasons to create both a hot and cold wallet, that much is certain. If you are interested in setting up your own cold storage solution checkout our guide on how to set up a bitcoin cold wallet.

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