Cryptocurrency, unlike the traditional or physical assets, need a digital form of storage – digital wallets. They can be categorized into two types:
Hot wallets are a form of storage for digital assets that are either online or frequently connected to the internet. There are various versions available, both for computers and mobile devices, and even the wallets provided to you by cryptocurrency exchanges are considered hot wallets as well. Hot wallets are most frequently used since they provide quick access to your funds by simply logging in to your account.
However, they are the least secure wallets as these wallet providers have complete control over your funds. More importantly, your passwords are vulnerable to phishing, keys loggings, and other illicit activities of criminals. Most stolen funds were kept in hot wallets by negligent users, not directly from the blockchain as many may believe.
Cold wallets offer more protection and security to your funds than hot wallets as they are not regularly connected to the internet, except when connecting with the blockchain network. Cold wallets also come in different shapes and sizes but the most popular form of the cold wallet is the hardware wallet.
Hardware Wallet, an external hardware device, which stores the private keys to your data or funds on the blockchains inside. You can access your funds on the blockchain by using this type of wallet as a key by simply plugging it with your computer, while the private key never leaves the wallet.
Hardware wallets usually support multiple coins and tokens and there are frequent updates introducing new functions that enhance security. The downside is that they are quite cumbersome and you actually need to have the physical device with you if you wish to access your funds, and most importantly, they are not free, costing around $50 to multiple hundred dollars depending on the brands and functions they offer.