"Hey Bro, I'm about to download a crypto wallet but I'm confused with Hot Wallets vs. Cold Wallets. What's that Bro?"

​Bro, think about the difference between the Leather Wallet in your back pocket and a Steel Safe bolted to the floor in your basement.

​The Wallet in your pocket is for spending. It's fast, easy to grab, and perfect for buying coffee. But if you walk down a dark alley, you might get mugged.

The Steel Safe is for saving. It takes ten minutes to open, but even if robbers break into your house, they probably can't get into it.

​That Pocket Wallet is a Hot Wallet.

That Steel Safe is a Cold Wallet.

The terms "Hot" and "Cold" just refer to the Internet Connection.

  • ​Hot Wallets (like MetaMask, Phantom, or Coinbase Wallet) are software on your phone or laptop. They are always connected to the internet. They are convenient for trading and buying NFTs, but because they are online, hackers can try to attack them remotely.

  • ​Cold Wallets (like Ledger or Trezor) are physical hardware devices (usb sticks). They are never connected to the internet directly. Your private keys (the passwords) live inside the plastic chip and never leave the device. Even if your computer has a virus, the Cold Wallet is safe because the virus can't jump the gap.

​Okay, but how does it actually work?

Here are a couple of details that define the security:

  • ​Key Storage: In a Hot Wallet, your "Private Key" (the master password) is stored on your computer's hard drive or phone storage. If you click a bad link, a hacker can read that file. In a Cold Wallet, the key is generated on the device and literally cannot be extracted.

  • ​The Hybrid Move: You can actually use them together. You can plug your Cold Wallet into your computer and use the MetaMask interface to view your balance. But when you try to send money, MetaMask will pause and say "Please press the physical button on your Ledger to confirm." You get the nice interface of the Hot Wallet with the security of the Cold Wallet.

​Why does this matter?

You wouldn't walk around with your entire life savings in cash stuffed in your jeans, right? That’s suicide.

The Golden Rule: Keep your "Walking Around Money" ($100-$1000) in a Hot Wallet for fun. Keep your "Life Savings" (Bitcoin/ETH) in a Cold Wallet.