Hot vs Cold Wallet Cryptocurrency

[BlockchainAppFactory]

A cryptocurrency wallet is not like any physical wallet that stores money. It does not actually store cryptocurrencies for its users. Rather, it stores the public and private keys that give users access to their cryptocurrencies. There are various types of cryptocurrencies depending on the way they are used and the platform that hosts them. A cryptocurrency wallet can be of two types:

• A hot wallet is an online wallet that is managed by a third-party who has the public and private keys.
• Cold wallets exist offline, on an app in a smartphone or desktop or even as hardware devices.

For users who are storing a minimal amount of cryptocurrencies, they can opt for hot wallets. But in case users are storing large volumes of digital currencies, it would be better to go for cold wallets for added security.

[bitmover]

There are also other kind of wallets, such as desktop wallets, mobile wallets, paper wallets...

What really matters is how the private keys are generated and stored.

Hardware wallets generate privatekeys offline and store them offline as well, this is why they are safer.

online wallets and mobile wallets generate and store them in an online environment, this is why they are not safe.

A desktop wallet may generate and store the keys offline, if the computer is properly airgapped.

[mk4]

Wrong, hot wallet isn't limited to online wallet which controlled by third-party. Hot wallet refers to wallet which connected to the Internet.

This. You're describing a custodial wallet with that description OP, not necessarily a hot wallet. You can have a hot wallet that's not controlled by a third party (e.g. Mycelium on Android, etc).

P.S. i don't see any points of this thread

*drumroll please!*

🥁🥁

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🎺🎺 Merits!

[pooya87]

• A hot wallet is an online wallet that is managed by a third-party who has the public and private keys.

Wrong, hot wallet isn't limited to online wallet which controlled by third-party. Hot wallet refers to wallet which connected to the Internet.

+these things should not even be called "wallets" because they clearly aren't. they are "banks" that are in full control of your money.

For users who are storing a minimal amount of cryptocurrencies, they can opt for hot wallets. But in case users are storing large volumes of digital currencies, it would be better to go for cold wallets for added security.

amount should not be a factor in choosing between cold/hot wallets. how often you access those coins is the deciding factor because cold storage is a "storage" not something you cash out from every hour.

[BlockchainAppFactory]

Hot wallets are basically wallets that are connected to the internet that may or not may not be controlled by third parties. They are easier to access but more vulnerable to hacking than cold wallets. So it is important to choose a wallet that is well-known for its security. Hot wallets can be used when you are going to be executing trades frequently.

If you are only looking to hold your cryptocurrencies, a cold wallet will suit you well. You can always split your funds and store a part of it in a hot wallet and the rest in a cold wallet depending on how you want to use the funds.

[BitMaxz]

Hot wallets are basically wallets that are connected to the internet that may or not may not be controlled by third parties. They are easier to access but more vulnerable to hacking than cold wallets. So it is important to choose a wallet that is well-known for its security. Hot wallets can be used when you are going to be executing trades frequently.

If you are only looking to hold your cryptocurrencies, a cold wallet will suit you well. You can always split your funds and store a part of it in a hot wallet and the rest in a cold wallet depending on how you want to use the funds.

The cold wallet is not the only option if you are holding a large amount of crypto there is another option like hardware wallets.
Did you hear about them? If not there are 2 well-known hardware wallets the one is Ledger nano S and the other one is Trezor.
Other hardware wallets are listed here https://bitcoin.org/en/wallets/hardware/

However, if you don't have a budget cold wallet is a great option.

[satscraper]

I am a newbie here I have read it from above about hotwallet and coldwallet so, actually cold or hot is just a way to store seedphrase offline and online. And also it is not about how much btc is stored but how long we store it in the wallet.

I am a newbie here I have read it from above about hotwallet and coldwallet so, actually cold or hot is just a way to store seedphrase offline and online. And also it is not about how much btc is stored but how long we store it in the wallet.

I would focus on the means of transaction sighing rather than on SEED storage.

The core difference between the two lies in how transactions are signed i.e. either online or offline. Hot wallets sign transactions online which means the private keys are on device connected to Internet. Cold wallets sign transactions offline. The relevant device that keeps wallet with private keys never touch Internet. Thus, transactions are signed in isolation.

That said,^{if security is your concern} your seed phrase should never be generated and/or stored online.
 

[Y0gap4undra23]

I am a newbie here I have read it from above about hotwallet and coldwallet so, actually cold or hot is just a way to store seedphrase offline and online. And also it is not about how much btc is stored but how long we store it in the wallet.

I am a newbie here I have read it from above about hotwallet and coldwallet so, actually cold or hot is just a way to store seedphrase offline and online. And also it is not about how much btc is stored but how long we store it in the wallet.

I would focus on the means of transaction sighing rather than on SEED storage.

The core difference between the two lies in how transactions are signed i.e. either online or offline. Hot wallets sign transactions online which means the private keys are on device connected to Internet. Cold wallets sign transactions offline. The relevant device that keeps wallet with private keys never touch Internet. Thus, transactions are signed in isolation.

That said,^{if security is your concern} your seed phrase should never be generated and/or stored online.
 

Thank you for explaining it, I have started to understand about bitcoin storage, about 3 days ago I tried to create an electrum wallet on 2 devices, 1 offline device to sign transactions and 1 online device to create transactions and view bitcoin balance mode, on the offline device I created a 12-word seedphrase and added a pashphrase (I have noted both and saved them well) I tried to enter my bitcoin from the exchange to my wallet and it successfully entered, after that I tried to withdraw my funds (at first it was a bit complicated but I started to understand) and this worked too, quite fun for me as a beginner.

My question is, this is how it works similar to a hardware wallet, we make transactions then need permission on the device that stores the private key to sign the transaction and then broadcast it again on the online device.

If there is a method like this, why do most people buy hardware wallets, are they easier to use or safer than the methods above, or do they just look like they have a lot of bitcoin assets if they have a hardware wallet?  in my country, many influencers suggest buying a hardware wallet because of the security issues of local exchanges, and those influencers suggest not to store assets of more than 1btc on the exchange and if it is still below 1 btc it is okay to still store it on the exchange, as written above (not how many assets are stored but how long the assets are stored in the coldwallet) I agree with this.

[satscraper]

Thank you for explaining it, I have started to understand about bitcoin storage, about 3 days ago I tried to create an electrum wallet on 2 devices, 1 offline device to sign transactions and 1 online device to create transactions and view bitcoin balance mode, on the offline device I created a 12-word seedphrase and added a pashphrase

The key point is that the machine dedicated to a cold wallet must remain completely offline ^{meaning it should never have connected to the internet in the past, present, or future}.

If there is a method like this, why do most people buy hardware wallets, are they easier to use or safer than the methods above,

Good hardware wallets ^{like Passport Core} offer stronger entropy sources which means better security for your crypto. They're also not so bulky as dedicated offline machine making them far more convenient ^{especially when traveling}. That said, if you do use the dedicated machine it should be completely free of any communication modules ^{like cellular, Wi-Fi, Bluetooth, etc}.

BTW, Make sure that autoplay/autorun for inserted media on your dedicated machine is disabled as I suppose you use flash drive to transfer the transactions for signing by cold wallet.

[Forsyth Jones]

My question is, this is how it works similar to a hardware wallet, we make transactions then need permission on the device that stores the private key to sign the transaction and then broadcast it again on the online device.

If there is a method like this, why do most people buy hardware wallets, are they easier to use or safer than the methods above, or do they just look like they have a lot of bitcoin assets if they have a hardware wallet?  in my country, many influencers suggest buying a hardware wallet because of the security issues of local exchanges, and those influencers suggest not to store assets of more than 1btc on the exchange and if it is still below 1 btc it is okay to still store it on the exchange, as written above (not how many assets are stored but how long the assets are stored in the coldwallet) I agree with this.

Because a hardware wallet is already a unique device for signing transactions in isolation and is presumably more secure than a hot wallet.

Also, if you don't have a second PC/laptop or an old notebook, buying a signing device like Passport, coldcard mk4/q, bitbox02 can be cheaper than buying a new computer just to sign offline transactions. Many air-gapped hardware wallets have a camera to scan QR Codes, so it's easier to sign the transaction on the hardware wallet and then transmit the signed transaction to the online device.

Also, if you don't have enough technical knowledge, you can end up compromising both your online and offline devices where your keys are stored. With a hardware wallet, there's presumably less chance of this happening (unless you compromise the seed phrase by writing it down somewhere online, you should write it down on non-propagable media such as paper, steel plate, etc.)

I recommend hardware wallets for both beginners-intermediate and veterans, for me, the only basic requirement for a hardware wallet is knowing the importance of the mnemonic phrase, passphrase and an amount that is sufficient for you.

I recommend this site to improve your knowledge: https://learnmeabitcoin.com/beginners/wallets/

[Pmalek]

My question is, this is how it works similar to a hardware wallet, we make transactions then need permission on the device that stores the private key to sign the transaction and then broadcast it again on the online device.

If there is a method like this, why do most people buy hardware wallets, are they easier to use or safer than the methods above, or do they just look like they have a lot of bitcoin assets if they have a hardware wallet?  in my country, many influencers suggest buying a hardware wallet because of the security issues of local exchanges, and those influencers suggest not to store assets of more than 1btc on the exchange and if it is still below 1 btc it is okay to still store it on the exchange, as written above (not how many assets are stored but how long the assets are stored in the coldwallet) I agree with this.

Hardware wallets present a compromise between ease of use and security.

The easiest way to use bitcoin would be to hold it on an exchange where all you need is an email address and password to log in. You don't have to make backups of your seed. This is also the least secure way of storing your digital assets. It's not recommended and you don't own the keys.
Hot wallets (software and mobile) are next. Most of them are non-custodial, meaning you own the keys but they are still stored on an internet-connected computer.
Properly airgapped setups are the safest but also more complicated to use than other methods. You need two separate devices: one for your private keys that must always be offline and one online device for broadcasting.
Hardware wallets allow you to store your keys on a specific device and away from your computer. They also offer a second verification method when you make transactions. You create everything on the software wallet (hot wallet) and then doublecheck all your entries on the screen of your hardware wallet. If the software wallet was compromised, you would notice something is off on the screen of you hardware wallet.

Hardware wallets are popular because they offer levels of simplicity and security that are enough for most people.

[bitmover]

Hardware wallets are popular because they offer levels of simplicity and security that are enough for most people.

Hardware wallets are my first recommendation for anyone who wants to buy bitcoin.

They are safe, and most sad histories of people losing coins would never have happened if they used a hardware wallet.

[Pmalek]

Hardware wallets are my first recommendation for anyone who wants to buy bitcoin.

They are safe, and most sad histories of people losing coins would never have happened if they used a hardware wallet.

That's true. Sadly, they don't protect against the most common schemes we see in the crypto scene and that's social engineering, such as phishing. Not even a hardware wallet can help you if you can get tricked into entering your seed on a website and thereby sending your keys and coins to scammers.

Common sense and basic understanding of online security will do wonders, though.

[dkbit98]

Hardware wallets are my first recommendation for anyone who wants to buy bitcoin.

They are safe, and most sad histories of people losing coins would never have happened if they used a hardware wallet.

Not all hardware wallets are safe, and they mean nothing if someone is not careful and losses the backup of seed words or expose them online.
That is why I understand why some manufacturers are making seedless hardware wallets, but that is not solving the problem.

In last few years several people asked me how to get the coins with fiat currencies, and that was as easy as people may think.
I certainly can't tell them to buy hardware wallets when they don't even know the basic stuff.

[Pmalek]

I certainly can't tell them to buy hardware wallets when they don't even know the basic stuff.

That's a problem they will have to figure out, or if not, face the consequences. Too many people approach Bitcoin and crypto in general too lightly. You can't save those people from themselves. It's even worse if they have money to invest. The more they have, the higher the odds that they will be scammed. If the money is tight, at least there is not much scammers can steal from them.

We live in a world of one-click-fix-it-all solutions. If it takes more effort than that, they lose interest.

[Forsyth Jones]

I certainly can't tell them to buy hardware wallets when they don't even know the basic stuff.

That's a problem they will have to figure out, or if not, face the consequences. Too many people approach Bitcoin and crypto in general too lightly. You can't save those people from themselves. It's even worse if they have money to invest. The more they have, the higher the odds that they will be scammed. If the money is tight, at least there is not much scammers can steal from them.

We live in a world of one-click-fix-it-all solutions. If it takes more effort than that, they lose interest.

I know how it is, many people who lost their funds due to human errors have come to me, several people who lost their funds due to phishing attacks and also from using passphrases (mainly on Trezor), without even knowing they were using a passphrase (they mistook the password for encryption of access to the application).

People who don't understand self-custody shouldn't use hardware wallets, they should at least learn how to use self-custody hot wallets, understand basic concepts such as the importance of not giving the recovery phrase to strangers, or saving it in notepads with readable text without any encryption, understand that anyone who has access to the seed has access to the wallet funds and can move the funds at will. The importance of open source and a good password and BIP39 passphrase. By understanding these basic concepts of wallets, people can consider purchasing hardware wallets.

[satscraper]

There are also other kind of wallets, such as desktop wallets, mobile wallets, paper wallets...

and brain wallet.

Who would've thought the brain wallet would be Peter Todd’s method of choice for storing his crypto stash? I came acrossthis bit of info today and was honestly shocked.
To me, relying solely on human memory for something so critical seems incredibly risky. Memory can fail without warning.
Personally, I wouldn’t recommend following in Peter Todd’s footsteps when choosing the wallet.

BTW, the most robust wallet setup ^{I've come across so far} is YetiCold, which is based on a Bitcoin Core multisig configuration. I recently deployed its Level 3 setup on my Ubuntu machines with a few personal improvements to how the relevant private keys are stored. I’m currently testing it step by step. That said, this setup definitely isn’t for everyone as it’s fairly complex. If you're interested, the full specs and system requirements can be found here:

1) Setup Instructions
2) instructions for creating and recovering a mulitsignature address.
3) YetiCold

[Pmalek]

Who would've thought the brain wallet would be Peter Todd’s method of choice for storing his crypto stash? I came acrossthis bit of info today and was honestly shocked.
To me, relying solely on human memory for something so critical seems incredibly risky. Memory can fail without warning.
Personally, I wouldn’t recommend following in Peter Todd’s footsteps when choosing the wallet.

This is so dumb. I don't know what is worse: Peter Todd relying on his memory alone for storing his seed phrase or this BTCC media outlet writing about it and mentioning it to its readers as a viable method. It doesn't even matter how sharp a person's mind is or how easy that someone can memorize things. One slip on an icy road followed by a head injury can change so many things.

[Synchronice]

Who would've thought the brain wallet would be Peter Todd’s method of choice for storing his crypto stash? I came acrossthis bit of info today and was honestly shocked.
To me, relying solely on human memory for something so critical seems incredibly risky. Memory can fail without warning.
Personally, I wouldn’t recommend following in Peter Todd’s footsteps when choosing the wallet.

This is so dumb. I don't know what is worse: Peter Todd relying on his memory alone for storing his seed phrase or this BTCC media outlet writing about it and mentioning it to its readers as a viable method. It doesn't even matter how sharp a person's mind is or how easy that someone can memorize things. One slip on an icy road followed by a head injury can change so many things.

What's wrong with remembering 12 words? Okay, one slip on an icy road followed by a head injury can change many things but so can change many things when you write down your seeds on paper or on anything else and store somewhere. It only takes someone to find your seeds to steal your coins. Also, if you hit your head, you might forget where you stored your seed phrases, so? If you plan to tell the location of your seed phrases to someone else, you are putting yourself into grave danger. There is a saying: If more than one person knows a secret, it is no longer a secret.

I think that it's not hard to remember 12 words, especially if you repeat them every day and you've been doing so for months or years.

[Forsyth Jones]

What's wrong with remembering 12 words? Okay, one slip on an icy road followed by a head injury can change many things but so can change many things when you write down your seeds on paper or on anything else and store somewhere. It only takes someone to find your seeds to steal your coins. Also, if you hit your head, you might forget where you stored your seed phrases, so? If you plan to tell the location of your seed phrases to someone else, you are putting yourself into grave danger. There is a saying: If more than one person knows a secret, it is no longer a secret.

I think that it's not hard to remember 12 words, especially if you repeat them every day and you've been doing so for months or years.

I think you have a point, most would probably agree that trying to memorize your seed while keeping your full backups physically is just an added security measure for the user's convenience so that they don't have to travel from point A to point B to get to their original seed. If they've memorized their seed phrase, they can recover it instantly from anywhere, and if they forget it, they can simply access their backups stored in secure locations.

Additionally, you can keep your seed phrase encrypted using decoy seeds through methods like Seed-XOR (I'll make a topic about that soon), Seed-OTP or even BIP-85. You could keep the encryption key offline in a local password manager like Keepass. Let's not forget the BIP39 passphrase as well. These solutions can solve your problem/fear of someone finding your seed phrase as long as it's encrypted.

As far as I know, only coldcard supports Seed-XOR.