Bitcoin Custody 101: Hot 🥵 vs Cold 🥶
Bitcoiners,
Not your keys, not your bitcoin.
Keeping your bitcoin on an exchange is considered third-party custody. In a sense, you do not actually own the bitcoin, rather a claim on the bitcoin you purchased which you trust that particular third-party will uphold. Taking possession of your bitcoin yourself includes considering hot vs cold storage.
Here is a quick explanation of the difference between hot wallets and cold wallets in regards to possessing your bitcoin so you can make educated security decisions for your bitcoin savings.
Cold Wallet 🥶
Cold wallets are best for securely storing your Bitcoin with the trade off of less convenient to use day to day.Â
Cold wallets are by definition, not connected to the internet. Being detached from the internet means it is much easier to protect your bitcoin funds from being stolen by any type of hacker. Cold wallets include paper wallets, wallets installed on air-gapped computers, or physical hardware devices.
An example of a cold wallet specifically made for bitcoin security is the Coldcard.
Hot Wallet 🥵
Hot wallets are best for conveniently storing your bitcoin in order to send or receive smaller amounts of bitcoin day to day.
Hot wallets are by definition, connected to the internet. Being attached to the internet means it is much easier to access your Bitcoin funds and transact with them, however, it also means there is added risk. Being connected to the internet allows a hacker a much greater chance of stealing your bitcoin.
An example of a hot wallet is the Muun wallet available on both iOS and Android.
Generally, bitcoin holders like to keep larger amounts of bitcoin in their cold wallet for security while keeping smaller amounts in another hot wallet for ease of access, however it is up to you to ultimately decide which is best for your needs.
Happy Sunday,
-Pod
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Eric Podwojski
Founder, Bitcoin EDU
Twitter:Â @epodrulz
Disclaimer: This should go without saying: This is not financial advice. This is not investment advice. I write this newsletter for education and entertainment. Act accordingly.