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Christmas is a great time to buy someone a new wallet. Or maybe even one for yourself. And you probably have an idea of what kind you like, be it leather vs. canvas, zippered vs. velcro, with coin pockets or without, branded or not, etc.
In the same fashion (no pun intended), you have a lot of choices to pick from when it comes to finding the best Bitcoin wallet for your digital currency needs.
Before making a decision, check out this guide that helps to explain the different types of Bitcoin wallets out there.
Katy Perry’s “Hot N Cold” song sounds a lot like what we are dealing with here. There’s hot wallets, and there’s cold wallets, but unlike the song, a wallet can’t be hot and then cold. It can, however, be cold and then hot (we’ll explain how after we share the definitions).
So what’s the difference between the two?
A hot wallet is connected to the internet. This means that web-based wallets, desktop wallets, and mobile wallets are all a type of hot wallet.
Cold wallets are offline wallets. This means that most of them are physical devices, much like a USB drive, where you’d need to plug it into a computer to access the data. Or a piece of paper. Cold wallets can also be software, as long as it’s never touched the internet once installed.
Back to the Katy Perry reference, a wallet can be cold (when it’s never been taken online). But, to access crypto, you would have to take it online (which makes it hot). So, a wallet can be cold and then hot (but not hot and then cold, because once it’s hot, it’s never truly cold again).
A hardware vs. software wallet is almost the same thing as comparing a hot vs. cold wallet. Hot wallets are usually software, whereas cold wallets are usually a piece of hardware.
To be able to use a hardware wallet to make transactions through an exchange, you have to plug the hardware device into your computer, or send the funds to a hot wallet. So, only the person who owns the hardware wallet and its PIN can get the private keys that are needed to access crypto holdings.
A software wallet is an intangible program that can be downloaded onto your computer or device to hold your crypto. Software wallets come in the form of mobile wallets, desktop wallets, and online wallets.
Let’s see what that means:
Your wallet can be custodial or non-custodial, and there are benefits and drawbacks to both. These terms get easier when you define the main word here: custodian. A custodian is a person who has responsibility for or looks after something.
So let’s try to make it simple by comparing it to something you’ve probably already dealt with in life. Are you the only person with a key to your house or does someone you trust have a spare?
If you’re the only person with the key, then you’re running your house like you would a non-custodial wallet. This means that you, and only you, have access to your private keys.
Remember, you need your private key (or 12-word recovery phrase) to access your crypto funds or import them to another wallet, so it’s something that you want to keep to yourself.
The good news here is that non-custodial wallets may offer more security because there is no third party service that can access your private key or be hacked.
An example of a non-custodial wallet is Coin Cloud’s very own Wallet app. It’s free to download, and the wallet app securely stores your digital currency and enables transactions. The Coin Cloud Wallet app can also be used to find your nearest Coin Cloud DCM.
Time for another reminder about what that means. A DCM is a digital currency machine that allows you to buy and sell crypto in exchange for cash. Yep, you read that right. You can sell your crypto and cash out from a physical machine that looks like an ATM, but it is so much more. It’s more than a Bitcoin ATM too.
By now, you’ve probably already guessed what a custodial wallet is. Imagine if you give your extra set of keys to your mom, sister, or boyfriend. Then, they are custodians much like a third-party who holds the private key to your online crypto wallet (except with your house, you obviously have a key as well, unlike with a custodial wallet where you just have login access).
Having a custodial wallet will take some of the responsibility off your plate for storing your keys, but who knows what could happen down the line (just like if your boyfriend becomes your ex-boyfriend and still has a copy of your house key).
When you’re in the market for Bitcoin (and other cryptocurrency) wallets, you have a lot to choose from. So, consider what matters to you most. If security is the top priority, then a cold wallet is typically the safest. If you want to be able to access your funds anywhere and anytime, you’ll probably want a hot wallet.
If you’re looking to hold your crypto long-term, it makes more sense to use a hardware wallet versus a software wallet. But if you’re doing frequent transactions, a software wallet would be better suited to you.
The truth is that you don’t actually have to choose between one or the other. You can have your hot wallet and cold wallet, too. There’s no limit to the number of wallets you use. But, just be sure to store them safely and keep your private keys secure so that you don’t lose access to your crypto or risk getting hacked.
The other thing to consider is which digital assets you want to store, because whatever wallet you choose has to be compatible with those coins and tokens.
If you want to try out a good well-rounded wallet for free (we think that’s a pretty sweet deal), download the Coin Cloud Wallet app. Although a lot of hot wallets are custodial, ours is a secure non-custodial hot wallet packaged into an easy-to-use app. It lets you buy, sell, and manage many types of crypto, and you can use your credit or debit card for buy transactions without going anywhere.
Oh, but did we mention … you can also find the nearest Coin Cloud DCM, where you can buy or sell over 40 different digital currencies with cash!
Need we say more?
Disclaimer: The information and views supplied on the Coin Cloud blog are for educational and entertainment purposes only. We are not financial advisors, so please do your research and consult with a trusted financial specialist before investing your money.
Founded in 2014 in Las Vegas, Nevada, Coin Cloud is the leading digital currency machine (DCM) operator. With over 4,500 locations nationwide, in 48 states and Brazil, Coin Cloud operates the world’s largest and fastest-growing network of 100% two-way DCMs, a more advanced version of the Bitcoin ATM. Every Coin Cloud DCM empowers you to quickly and easily buy and sell over 40 cryptocurrency options with cash.
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