Hot Wallet vs. Cold Wallet: Self-Custody 101

Hot wallets and cold wallets serve as two separate forms of self-custody for digital currencies. Cold wallets are offline storage solutions, like USB drives, which are not connected to the internet. Hot wallets are connected to the internet and include browser extensions and mobile apps.

Written by: Anatol Antonovici   |  Updated January 2, 2024

Reviewed by: Mike Martin

Fact checked by: Ryan Grace

Table of Contents

🍒 tasty takeaways

  • Self-custody wallets securely store private keys without sharing them with third parties.

  • Hot wallets require an internet connection, offering easy access to decentralized finance (DeFi) and Web3 apps.

  • Cold wallets store private keys offline, providing the highest possible level of security.

Summary

Feature Hot Wallets Cold Wallets
Connectivity Internet required No internet, offline use
Security Less secure, vulnerable to online threats Most secure, immune to online hacks
Usage Convenient for active trading and payments Best for long-term storage
Cost Most are free May require initial purchase (e.g., hardware wallets)
DeFi Access Direct access to DeFi platforms Limited or no direct DeFi platform access
Private Key Control User maintains private key User maintains private key

What Is a Self-Custody Wallet?

A self-custody wallet, also called a non-custodial or Web3 wallet, is a cryptocurrency wallet that holds your private keys, giving you full control over stored digital assets like Bitcoin or Ethereum. Self-custody wallets enable peer-to-peer (P2P) crypto transactions and can connect directly with smart contracts, giving access to DeFi applications.

Self-custody wallets, unlike those from centralized exchanges, keep private keys solely with the user and often don’t require registration or KYC verification.

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Crypto Hot Wallet vs. Cold Wallet

Self-custody wallets, also called decentralized wallets, safeguard private keys. There are two primary types of self-custody wallets:

  • Hot wallets are connected to the Internet and can be used for regular on-chain transactions, such as interacting with DeFi apps or sending payments. They come in the form of browser extensions, desktop apps, or mobile apps. Centralized exchange wallets also fall into the category of hot wallets, but they don’t provide self-custody, so we’re not discussing them in this article.

  • Cold wallets store crypto funds entirely offline. They may come in the form of hardware or even paper. Hardware wallets store digital assets offline, but they can easily connect to the Internet through a USB port. Still, cold wallets are more suitable for long-term storage. 

Both wallet types offer enhanced security over custodial wallet apps by storing private keys, with cold wallets generally being more secure.

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Hot Wallet Pros and Cons

Let’s now compare some advantages and disadvantages of hot wallets.

Hot Wallet Pros Hot Wallet Cons
User-friendly desktop/mobile apps. Exposure to online security threats.
Easy DeFi and Web3 app access. Need for careful seed phrase storage.
Features like in-app swaps and staking. Risk of smart contract vulnerabilities.
Tracks transactions, balances, NFTs. Can be less private than cold wallets.
Mostly free and easy to set up. May lead to impulsive or less thoughtful transactions.

Examples of Hot Wallets

One of the best non-custodial hot wallets is the wallet application provided by tastycrypto. It is available as a browser extension or mobile app (iOS and Android). tastycrypto gives you full control over your crypto funds and focuses on user experience by offering extra features, such as token swaps, NFT support, and DeFi integration.

tastycrypto offers both iOS and Android self-custody wallets – download yours today! 👇