- To use a hot wallet, the user needs to connect to the internet.
- Seed phrase is used to restore or recover the access of cold wallet.
Hot Wallet
Hot wallet is a crypto currency wallet which is always connected to the internet and to the crypto currency network. It is also used for receiving and paying crypto currency and it allows you to view, that how much is available for use.
To buy or mine crypto currency, we have to first set up the wallet to execute a transaction, for buying any goods and services. Users can store crypto currency and the private key which is required to access the currency, when the ownership is transferred to the user from the ecosystem.
When a trader owns cryptocurrency, the trader is provided with a private key and a public key. Public key is similar to user account number which helps him/her to receive a token without revealing their identity. On the other hand, a private key is like a personal identification number, which allows users to check balance, execute transactions and many more. Without either of the keys the wallet is useless.
To use a hot wallet, the user needs to be connected to the internet and cryptocurrency infrastructure. For users, a wallet is an interface which gives access to cryptocurrency and helps in storing it. Whereas for cryptocurrency network, it facilitate to make changes in the records kept in the decentralized blockchain network.
Types of hot wallet
There are different types of hot wallet and are free to download. They are designed with a particular mobile application, which limits their usage as they cannot be used with other cryptocurrency or ecosystems or there can be problem on the other end, crypto exchange, they will not be accepting transfers from the particular wallet.
It is very difficult to hack something but as hot wallets are operable when connected to the internet so there is a chance to get hacked, if there remains a minor glitch on the network. But companies which are developing wallets making it as secure as possible by adding layers of verification before accessing services.
Cold wallet
Cold wallets are the wallet which holds users private crypto key in an offline mode, these are also known as hardware wallets because these private keys are usually stored in some flash drive or pendrive. These cold wallets protect users from online hackers as they are not connected to internet. In the crypto world, cold wallets are known as cold storage, which ensure the safety of holding cryptocurrency.
The safety of the cold wallet is maintained by giving it a 4 to 8 digit PIN code which will then allow the holder to use it for trading purposes. Nothing is immune in this technological era from hacks, however cold wallets are not connected to the internet but still they can be hacked by number of ways such as flooding the power supply to gather raw data by overloading the device ,or exploiting information leaked from the different voltage output as it executes the transaction.
Seed phrase is another way by which anyone can access your cryptocurrency in your cold wallet. Seed phrase is a set of random generated words, which is used to recover or restore the access of cold wallet.
So indirectly no one can access cold until the user has shared seed phrase. As long as the seed phrase is with user and he/she hasn’t shared with anyone, no one can steal cryptocurrency and there are other security features too like if someone incorrectly entered password three times then the ledger device initiates the factory reset process.
