Hot Wallet vs. Cold Wallet: Pros & Cons

hot and cold wallet comparison

The rising popularity of blockchains is evident in its ever-expanding user base. As of 2022 reports, there are more than 295 million cryptocurrency users worldwide. Given the wide range of NFTs and crypto tokens, organizing a profitable digital asset base can be challenging for many. This is where crypto wallets (hot or cold wallet) can save the day by letting you maintain a well-functioning digital repository for your investments.

But what exactly is a crypto wallet and how does it work? Is there a wallet for halal-conscious investors? This article dives into the world of crypto wallets and all you need to know for choosing the right one for yourself.

What is a Crypto Wallet?

A crypto wallet stores blockchain-dependent crypto assets. It can take up the form of a software program or a hardware device, which you can use to keep and transact crypto assets.

There are two important ‘keys’ in a crypto wallet: a public key is used to send and receive cryptocurrency, while a private key confirms a transaction between wallet owners.

In broad terms, crypto wallets are divided into Hot wallets and Cold wallets. While Hot wallets have a system to store private keys online, Cold wallets store these keys offline.

What Are Hot Wallets?

A hot wallet is a cryptocurrency wallet that always stays connected to the internet. It is also called a software wallet as it can be accessed through your computer or mobile.

Users can store their cryptocurrency tokens in these wallets and use them in real-time to create transactions. Hot wallets provide an interface that operates through public and private key combinations that give your account a unique identity.

Although famous for their convenient access and free usage, these wallets are vulnerable to online attacks such as phishing and hacking.

Examples of popular hot wallets are Metamask, Edge, Coinbase, and Sahal Wallet.

Hot wallets are useful for most Web3 investors, but they come with their own set of pros and cons:



Types of Hot Wallets

Exchange-Based Wallets

These crypto wallets are part of a centralized exchange that holds the private keys to user’s accounts. Such wallets are held by financial institutions to maintain the portfolios of their customers. Owners of exchange-based wallets find it easy to buy and sell cryptocurrency with fiat money while enjoying other financial services on the same platform.

Non-Custodial Software Wallets

Non-custodial wallets like the halal crypto Sahal Wallet let users have complete custody over their funds and the keys to their accounts. This means that the company or entity that created the wallet does not keep users private keys. These wallets are available through mobile or browser applications. Popular among small-scale investors and day traders, these wallets offer greater flexibility and control over digital portfolios by eliminating centralized interference.

What Are Cold Wallets?

A cold wallet is a hardware device that stores users’ private keys offline. These wallets are typically in the form of a USB stick or hard disk to store information related to crypto assets.

The fact that these physical wallets are disconnected from the internet generally keeps them safe from online attacks. It is difficult for hackers to compromise asset portfolios held in cold storage unless they have access to the cold wallet and hence the private keys. Transactions among hardware wallet owners usually involve a combination of online and offline processes that link to the blockchain network.

Cold wallets are popular for the safekeeping of private keys and accessing details of long-term asset holdings. Many companies and exchange platforms use these wallets for storing crypto tokens, backup data, and account information of investors.

Examples of cold wallets are Ledger Nano X and Trezor Model T.

Although storing your portfolio details in a cold wallet comes with many benefits, there are also some drawbacks that you should be aware of. Let us take a look at a few of them:



Things to Consider When Choosing a Hot or Cold Crypto Wallet

Despite its high volatility and price instability, confidence in cryptocurrency has only shown a steady increase. According to the results of a 2021 survey, 97% of respondents considered crypto-backed assets as a reliable investment. Given these trends, ownership of crypto wallets has become a necessity for most new-age investors.

If you’re planning to enter the world of cryptocurrencies, selecting the right wallet for your ventures is a crucial first step.

Here are some things you should keep in mind to pick your very own crypto wallet:

1. Is it Secure?

Since all crypto transactions happen online, the robust security of your wallet is essential. Although blockchain-based finance is considered safe because of the immutable nature of crypto ledgers, the integrity of your personal account can be risked in case of a cyber attack. Hot wallets in particular are vulnerable to potential hacking and phishing scams due to their consistent online presence.

A good crypto wallet must have sturdy security features such as a secure pin, unique transaction keys, and a two-factor authentication system.

2. Is it compatible with your devices?

Cryptocurrency is an evolving technology. This means that the modes of accessing it are also ever-developing. That is why it would be smart to choose a crypto wallet that provides wide integration across multiple platforms and asset types. Getting a wallet that supports a variety of cryptocurrencies and NFT tokens would simplify your portfolio management to a great extent.

To ensure the productivity of your wallet, check for its compatibility across different mobile and computer devices.

3. Is it convenient to use?

A convenient-to-use wallet is one with integrative features that link it with major exchanges and decentralized applications (DApps). Apart from this, it should also have backup and recovery options for your account in case you lose your login credentials. Ideally, you want to choose a wallet that is flexible in terms of facilitating transfers across multiple crypto networks and platforms.

The Sahal Wallet is one such wallet that allows you to browse and trade in halal crypto tokens available within the entire DeFi ecosystem.

4. Will you have to pay additional transaction fees?

Some web3 wallets charge additional transaction fees for facilitating an exchange. These are usually fixed as a percentage of currency being traded on a platform. Certain systems have variable charges depending on the blockchain network involved or the payment method used.

Most cold wallets are free to download whereas hard wallets need to be purchased. You will still have to pay gas fees for the cryptocurrencies you deal in, but finding a wallet with no or minimal service charges is possible.

Sahal Wallet: A Complete & Easy Solution for Halal Crypto

Faith-conscious communities who want to participate in DeFi often find it difficult to search for halal crypto projects. Currently, most DeFi projects available are interest-based. For Muslims, this goes against Islamic principles, which is why the Muslim community often hesitates to be involved in crypto.

Recognizing this issue, MRHB has built a halal DeFi ecosystem that is inclusive and easily accessible. The Sahal Wallet is a first-of-its-kind non-custodial crypto wallet that filters out interest-based DeFi projects and only lists halal crypto tokens. Built to further the vision of ethical Web3 finance, the Sahal Wallet helps in the smooth navigation, storage, and trade of halal crypto assets.

Leave a comment

Your email address will not be published. Required fields are marked *