Why Hot Wallets Still Have Their Place in Crypto?
Before diving in crypto and buying the first cryptocurrency, it is especially important to choose the right place where to store this digital gold. Although, there are a lot of different Bitcoin wallet options available on the market — sometimes it could be hard to think through all pros and cons.
Most of articles on Internet assure that cold wallet is much better than a hot one. That’s not exactly correct. So, let’s take a look at the market of wallets from another point of view.
Difference between hot and cold wallet
In general, hot wallets are usually always connected to the Internet while the cold wallets stay offline most of the time. Based on this distinction, hot and cold wallets have a different destination. Hot wallets are much better for everyday usage. Cold wallets, from another side, are used preferably for the long-term secure storage of cryptocurrencies. A decent amount of people consider using both types of wallets depending on what they are going to do with their cryptocurrencies.
Types of hot wallets
There are a wide variety of hot wallets. The difference depends on their functions, accessibility, safety, type of application. They could be divided into three groups:
- Exchanges (Binance, Coinbase). A unique type of hot wallet, which is rarely used for long-term storage of coins. An exchange is a place where everyone can buy/sell or trade their crypto without any obstacles. Thousands of people use exchanges daily, even being aware that it is the most unsafe place for storing coins which could be hacked or simply closed.
- Web wallets (Jaxx, Blockchain.info) This is the simplest type of hot wallet. It doesn’t require any special software or skills. Moreover, its user interface is very easy and understandable. That’s why they are valued among people who don’t like to make things too complicated and prefer comfort.
- Software wallets (Exodus, Mycelium) Another kind of hot wallets for mobile phones or computers. They require a particular application to be installed. They are very functional and allow to tie a device to the wallet. It means nobody can have access to the wallet without ownership of a specific computer or a smartphone connected to it.
Hot wallet advantages
Each type of hot wallet has its unique advantages and weak sides. Among others, a web wallet is a golden middle. Anyway, what makes the hot wallet still competitive on the market?
First of all, they are extremely cheap. The fact, that hot wallets are usually free makes them much more attractive either for newcomers or true crypto-believers. While compared to hardware wallets like Ledger or Trezor which cost $60-$120 it becomes evident that it is merely unprofitable to purchase an individual device to store there a small number of cryptocurrencies.
Secondly, the ability to access the wallet through a smartphone from any place with an internet connection makes hot wallets super comfortable and easy to use. Moreover, it is possible to transfer, exchange or do whatever you want with coins just in a few clicks. This is especially beneficial in a fast-changing world of cryptocurrency. Being fast and flexible can save a lot of money in perspective.
Finally, it is worth to notice, that hot wallets are famous for their simplicity and user-friendly interface. There is no complicated installing process, which can be an obstacle for inexperienced users. The interface is understandable and easy to manage. Even if someone faces any difficulties or issues while using a hot wallet, they can ask for assistance from support, and they will make sure to help.
Negative side of hot wallets
Security is the only huge disadvantage which is typical for all hot wallets. Although third parties have applied different measures to protect cryptocurrencies from thieves and frauds, still coins are in danger because of constant connection to the Internet. This means a wallet is always opened to an attack. Of course, taking some actions to prevent this will significantly lower the risks, but it anyway stays more or less unsafe.
Neither cold nor hot wallet grants a 100% security. There are a lot of accidents which may happen to you, your computer, smartphone or even particular device. So it is mostly up to how careful are people with their money.
The place of hot wallets in the crypto world
At the moment, the entry barrier for new investors in the world of crypto is very high. In addition to the complicated structure of blockchain, many technical terms and high risks, there are a wide variety of other obstacles to joining the crypto community. Lack of knowledge, experience, information are just some of them. To make this process smoother for everyone — a hot wallet is a key, as it doesn’t require high technical skills and deep knowledge of how everything works. People can simply buy the most attractive coin and store it there for free.
Following the current trend, more and more people create a couple of different wallets to diversify their risks and prevent losing all the money at once. Keeping funds in some paper or hardware wallets might be a quite uncomfortable as it is impossible to withdraw or transfer coins fast. For these purposes, a hot wallet is the best option as it is free, easy to use and costless.
If people are not sure whether a service suitable for them or not, they will likely try it out first. Unfortunately, it is not so comfortable with hardware wallets (impossible without buying it) or desktop cold wallets (it takes a lot of time and free space to download ~150 GBs of transaction history). At the same time, it is possible to test a hot wallet, its functionality, customer support or whatever you want even without verification process.
It is hard to state that one wallet is better than another one because each wallet has its pro and cons. People often use different wallets for different operations, as some of them are better for an exact case. It becomes evident that wallets have different goals and, as a result, different target audience.
Unfortunately, there is no universal wallet which is perfect for every situation and has no disadvantages. So that’s why everyone may agree, that hot wallets still have their place in crypto as well as other types of wallets.