How to Keep Your Hot and Cold Wallets Safe?

Aleessa Ching
Feb 19, 2024

Everyone wants to keep their money safe. Especially if you've worked hard for it, you would want to ensure that you do your best to safeguard it from being stolen or lost. And just like with cash, cryptocurrencies are stored in wallets to hold funds. 

Cryptocurrency wallets come in two kinds‚ hot and cold. Hot wallets are those that are connected to the internet like Phantom and Metamask. Cold wallets are stored offline, usually through a physical flashdrive-like device such as a Ledger or Trezor. 

A chart comparing hot wallets, cold wallets, self-custody, and third-party custody: how should you store your crypto?c

Both come with their own pros and cons. Hot wallets are easier to use and more convenient because they can be accessed from any device with an internet connection. This makes them better for transacting, especially if you do it often, since it allows you to easily send and receive crypto. However, because they are connected to the internet, they are more vulnerable to hacking and cyber attacks. They also store your private keys online, which could potentially be accessed by unauthorized parties that steal your funds, making them less secure. 

On the other hand, cold wallets are much more secure as they store your private keys offline, which cannot be accessed by hackers. Having your funds stored on a physical device instead of on the internet also makes it less vulnerable to cyber attacks. However, these security measures make the wallet inconvenient, since funds can only be accessed from the specific hardware wallet you stored the funds in. They are also not that good for transacting as they require you to manually transfer cryptocurrency to a hot wallet or exchange to make a transaction.

And while there isn't one correct way on how to store funds, it is important to be aware of how we can keep each of these wallets safe to avoid being hacked and losing money. 

Security concept of crypto currency wallet. 7608346 Vector Art at Vecteezy

If you're interested in hot wallets, here are some tips on how to keep your hot wallet safe: 

  • Use a strong, unique password: Choose a password that is long and complex, and do not use the same password for multiple accounts.
  • Enable two-factor authentication (2FA): This adds an extra layer of security to your account by requiring you to enter a code sent to your phone number or email in addition to your password.
  • Use a reputable wallet provider: Do your research and choose a wallet provider that has a good reputation and a track record of security.
  • Keep your software and antivirus up to date: Make sure to keep your operating system and antivirus software up to date to protect against the latest threats.
  • Be careful with clicking links and connecting your wallet: Ensure that the URL of the websites you are connecting your wallet to are correct and legitimate. Be cautious of phishing links and sites.
  • Do not give your hot wallet's private key away and store your seed phrase in a secure and offline place: Anyone with your private key and seed phrase can access your wallet, and subsequently your funds. Leaving that information in a place others may access can get you hacked. 
  • Avoid using public Wi-Fi to access your wallet: Hackers may use public Wi-Fi networks to access your wallet and steal your funds.

For those interested in cold wallets, here are some tips on how to keep your cold wallet safe: 

  • Store the cold wallet in a secure location: Choose a location that is secure, such as a safe deposit box and avoid storing it in a location that is easily accessible to others.
  • Make multiple copies: Create multiple copies of your cold wallet's recovery phrase and store them in different safe locations. This will ensure that you have a backup in case the original is lost or stolen. 
  • Do not share your cold wallet's recovery phrase or private keys with anyone: The same as with hot wallets, sharing this could potentially allow others to access your funds.

Other general rules of thumb are to not store large amounts (or all) of your cryptocurrency in a single wallet. Most people would also recommend using a cold wallet if possible, as they are considered the most secure way to store cryptocurrency.

Again, it is up to your discretion if you would prefer using a hot wallet, cold wallet, or both. What is important is that you take the necessary precautions needed in using each to ensure you keep your funds safe. 

Aleessa Ching
NFT Trader, Externals and Partnerships, Investment Analysis

Student during the day, NFT trader at night. Experienced in creating, maintaining, and negotiating partnership deals and sponsorships, while having a knack for the startup and venture capital scene.

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