Hot wallet or cold wallet: which one fits your balance

Three places your coins can live

• On an exchange — the exchange holds the keys for you. It is the easiest option for trading, but you are trusting the company. When FTX collapsed in 2022, many customers could not withdraw their funds.
• Hot wallet — an app or browser extension where you hold your own keys, on a device connected to the internet. Convenient for everyday use and for connecting to apps.
• Cold wallet — keys kept offline, usually on a hardware wallet: a small device that signs transactions without exposing your keys to your computer.

The trade-off

Hot wallets are quick and free, but because they live on an internet-connected device, malware, phishing sites and malicious approvals can reach them. Cold wallets make every transaction slightly slower, and in exchange they are much harder to attack remotely.

Neither protects you if someone obtains your recovery phrase. That phrase is the real key to your funds.

When moving to cold storage makes sense

There is no universal amount, but a cold wallet starts to make sense when:

• the balance is more than you would be comfortable losing;
• you plan to hold for months or years rather than trade often;
• you connect your hot wallet to many apps and want long-term savings kept separate.

A common setup is simple: a hot wallet with a small amount for daily use, and a cold wallet for savings that rarely moves.

Basic rules for any wallet

• Write your recovery phrase on paper or metal and store it somewhere safe. Never photograph it, type it into a website or keep it in cloud storage.
• Buy hardware wallets only from the manufacturer or an authorised seller, and never use a device that arrives with a recovery phrase already filled in.
• Send a small test transaction before moving a large amount.
• Keep your wallet software up to date.