Cold Wallet Vs Hot Wallet: The Best Choice To Protect Your Crypto Assets

It has become very important for investors to have a sense of security that their investments are safe in their crypto assets.

The cryptocurrency market is delicate and complex. Not only is there concern about cyber threats, but there is also less clarity on what happens to investments if a cryptocurrency exchange goes bankrupt.

Earlier this month, investors panicked at Solana after some users reported that their funds had been withdrawn from their “hot” wallets, including Phantom, Slope and TrustWallet, without their knowledge. Solana has estimated the loss of millions of dollars due to this cyber hack.

Solana’s wallet hack was another casualty of cyber threats. The crypto market has seen a boom in hacking over the past few years.

In its latest report, Chainalysis estimates that as many as $2 billion in cryptocurrency has been stolen in 13 separate cross-chain bridge hacks, most of which were stolen this year. Attacks on bridges accounted for 69 per cent of the total funds stolen so far in 2022.

“This represents a significant threat to building trust in blockchain technology. As more value flows through cross-chain bridges, they become more attractive prey to hackers,” said blockchain data platform Chainalysis.

Earlier, a Chainalysis report showed that crypto-based crime hit a new all-time high in 2021, with illegal addresses receiving $14 billion during the year, up from $7.8 billion in 2020.

Meanwhile, due to deeply volatile market conditions, several crypto exchanges and financial services providers such as Celsius Network, Babel Finance, and Voyager Digital have faced liquidity crunch, which has forced them to opt for bankruptcy. This has also frozen the assets of investors.

Whereas cyber threats and bankruptcies are beyond the control of investors. However, there are still ways to keep your investment in cryptocurrencies safe.

There are two types of wallets where an investor can store their cryptocurrency assets. These are cold wallet and hot wallet.

Cold wallets are less risky and the information remains with the customers. These are offline, hardware wallets in the form of a physical medium that minimizes the chances of data leaks and theft – unless the user shares their details with anyone else. Usually, cold wallets do not require an internet connection, however, are less convenient. Also, the options for cryptocurrencies are limited here as many people usually trade in hot wallets.

Speaking of hot wallets, they are connected to the Internet and are part of cryptocurrency exchanges—so they are more vulnerable to cyber hacks. However, they are faster and easier to trade in cryptocurrencies. A user can store, send and receive tokens quickly in the hot wallet and hence they are less time consuming.

Cold Wallet vs Hot Wallet: What’s the Best Option to Keep Your Crypto Assets Safe?

“Crypto storage is the digital need of the hour, with the ongoing debate over whether to store it in a hot or cold wallet – the appropriate choice to hold your bitcoins and other digital assets – has many aspects,” said Ashwini Kumar, founder of Helperworld.

Whereas Abhijit Shukla, CEO and Director, Tarality said, “Between holding your cryptocurrencies in a hot wallet – web-based, mobile and desktop wallet or cold wallet – hardware, paper wallet, and physical bitcoin or even The best of both wallets. – Whether an exchange account hot wallet, a mobile hot wallet or a hardware cold wallet, a crypto user looks at the reliability, functionality and overall security of their assets.”

“Hot wallets do not require an online-offline switch to conduct cryptocurrency transactions due to their ease of use, crypto hot wallets are vulnerable to virtual cyber attacks. Cold storage wallets, on the other hand, are fundamentally secure, however, these Methods have been replaced by reputable, high-quality hardware wallets or very secure cold-storage options available on reputable exchanges,” Shukla said.

In the context of cryptocurrency storage, the founder of Helperworld said that cold wallets are considered a mainstay of security, while hot wallets are vulnerable to hacker attacks and fraud attempts. Furthermore, cold wallets are known to be impenetrable ensuring safety and security.

Specifically, the CEO of Tarality believes that hot wallets are becoming more secure and cold wallets more convenient.

Shukla said, “Finally, over time, there has been a lot of convergence – hot wallets are becoming more secure, and cold wallets are becoming more convenient, striking the right balance between asset functionality and security. Is.”

“To conclude, ease of use requires having a hot wallet connected to the Internet to hold a limited number of coins inside. However, for security purposes, the use of a cold wallet to store the bulk of your assets is essential. So that they are ‘least accessible to potential hackers and cyber threats,’ Kumar said.

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