Cryptocurrency

Cryptocurrency wallets: Hot vs. cold wallets and how they work – Komando


If you’re dipping your toe into cryptocurrency, you need a wallet. Similar to the physical wallet that holds your cash and cards, a crypto wallet holds your digital assets.

There are two main types of self-custody wallets: A hot wallet that’s web-based and connected to the internet and a cold wallet that’s a specialized piece of hardware.

Which one should you use? It depends. For most people, a web-based wallet is totally fine. If you have a lot of money or expensive NFTs to store, a hardware wallet is a smart idea.

Let’s take a closer look at some of the popular options.

Software-based (hot) wallets

When you buy cryptocurrency on an exchange like Coinbase, FTX or Crypto.com, a wallet is created for you — one that the exchange controls. This is called a custodial wallet. To move your crypto, buy things with it or stake it to earn money, you need to move to a self-custody wallet. That means you have complete control over the wallet and everything inside it. 

Which one should you choose? 

MetaMask

MetaMask is one of the most popular wallets on the most-used blockchain, Ethereum. It has all the features you need to buy, store, send and swap tokens. 

You can access MetaMask as a browser extension you install and use directly from Chrome, Firefox, Brave or Edge. There’s also an app version available for iPhone and Android.

Exodus

Exodus is a desktop and mobile-based wallet that allows you to send, receive and exchange Bitcoin and 180-plus other cryptocurrencies. You can also purchase any of the supported coins using your credit or debit card, bank account or Apple Pay in the Exodus mobile app.

Here’s a nice bonus: Exodus says its online help desk and customer support are available 24/7. 

Coinbase Wallet

You’ve probably heard of Coinbase — it’s an exchange you can use to buy and sell hundreds of cryptocurrencies.

Coinbase Wallet is, surprisingly, not tied to Coinbase’s exchange (you don’t even need an account) and your wallet is entirely under your control. Coinbase Wallet supports thousands of tokens, including Bitcoin, Ethereum and Solana.

Hardware-based (cold) wallets

Let’s say you’ve moved beyond a few hundred bucks in crypto. If you hold a significant amount of digital currency or have some expensive NFTs in your portfolio, it’s time to consider a hardware wallet. 

Hardware wallets are devices that look similar to thumb drives. Because they’re not connected to the internet, your assets are safer from hackers and scammers — but don’t be fooled into thinking you don’t need to take security seriously. (More on that and your seed phase below.)

Here are the two most popular options.

The importance of your seed phrase

When setting up your wallet, you’ll get what’s called a seed phrase. It’s a list of usually 12 or 16 common words. This is the key to unlock your wallet.

Make sure to write down your seed phrase. Yes, write it down on a piece of paper and store it somewhere safe. Don’t upload to your cloud storage account, email it to yourself or save it to your desktop. 

If someone gets your seed phrase, they have total control of everything in your wallet— so make sure you protect it.



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