We all are familiar with wallets. Yes, the ones in which we keep our coins, cash, cards, bills, and whatnot. You got the picture, right? What do you think they do? Similarly, in the case of cryptocurrencies, we have a tool called a digital wallet. These digital wallets store the digital cryptocurrencies and enable us to do online transactions. Since digital wallets are mandatory for easy and safe crypto exchange, we will be gathering bits on the digital wallet and then diving deep into details in this article. We will start with the definition of Digital wallets then move to their two basic types.

What are Digital Wallets?

A digital wallet or e-wallet is somewhere we use to store our digital currencies like Ethereum, Bitcoins, USDC, and more. The owner can use a private key to control the wallet. This key provides access to the wallet and ensures its security. If you don’t have the private or public key, you cannot access your funds. Digital wallets manage and use cryptocurrencies like this trading Platform. There are several components of an e-wallet. However, today we will focus on its types. The two types of wallets that we have are:

  • Hot Wallet
  • Cold Wallet

Hot Wallet:

The software of a Hot wallet is either on the mobile phone, a PC, a laptop, or a cloud server. They are the active form of wallet and are exposed to the web. Due to the storage of cryptocurrencies on online platforms or in hot wallets, they are highly at risk of theft. However, the plus about them is that the platform developers cannot access the keys stored in them.

Advantages of Hot Wallet:

Hot wallets are beneficial in many ways:

  • Convenience: They are easy to use due to their custodial nature. This makes Hot Wallets give you relatively lower stress.
  • Liquidity: The cryptos stored in a hot wallet can easily get converted into fiat currency or cash.

Disadvantages of Hot Wallet:


As an online wallet, there are risks involved in using the Hot Wallets:

  • Susceptibility to Hacking: Hot wallets are exposed to the web and hence have higher risks of cyber theft. However, there are constant practices that are under testing to increase the security level of hot wallets.
  • Control: As a custodian party has control of your keys. They might freeze your access to your funds and ghost on you.

Cold Wallet:

Unlike hot wallets, cold wallets store the keys offline. These are application-based wallets that keep your digital money secure in your smartphone. They can be either paper or hardware and are a little more reliable than hot wallets. It needs crude technology and develops your key.

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Advantages of Cold Wallets:

  • Privacy: The cold wallets do not ask the customers for their details. To be precise, we can use them without any identity verification. Let us take a look at the pros of the cold wallet:
  • Multi-Currency Support: You can invest in multiple currencies and store them within one hardware cold wallet.
  • Cyber Security: The cold wallets have no threat of cyber attacks. They prove various levels of standardized security to the users.

Disadvantages of Cold Wallets:

  • Complex: They are much more complex than hot wallets. Their multi-currency support system makes its use a little more complicated. These are some cons that one must know before using the cold wallets:
  • Illiquidity: The stored Bitcoins or Altcoins cannot easily be converted into fiat currency.
  • Cost: The hardware cold wallets charge for their usage. They are not free.

Wrapping it up !!!

If you plan to invest in cryptocurrencies, we hope you found this article informative and helpful. However, you must be aware of the risks included in crypto trading, so keeping a check on how the market operates and the new developments will help you make the right call. However, in the long term, they give endless benefits in the form of good returns. If you are a person who is into tech, then you should try digital currencies, transactions, and wallets. You can rely on sites such as Bitcoin Era to start your journey in this world of digital investment.

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