Value, in any form needs to be stored and preserved. Books store knowledge, Brains store ( & process) information, lockers store jewellery, gold, cash; purses store money, coins
and digital wallets store crypto.
Which wallet stores what?
Crypto can be stored in 2 types of wallets, viz.;
Hot Wallets
Cold Wallets
Let’s create an analogy here. Assume you have $100 with you. What are the possible methods that allow you to safely store and utilise this value?
> Go to the ATM, withdraw cash & store it physically in a vault or a locker.
Or, > Keep it in your account, and utilise its value through a credit or a debit card. Now hold onto this analogy.
In the case of Crypto,
You can store your virtual digital assets on a physical device ( as depicted in the image) - known as Cold Wallets,
Or store them with a trusted online exchange, the same exchange that facilitates your transaction - known as Hot Wallets.
Cold Wallets
Crypto is a virtual asset, unlike cash it is not tangible i.e. cannot be felt physically. However, cold wallets / hardware wallets allow you to store Crypto offline.
How’s that possible you may ask?
These cold wallets are pieces of hardware that resemble a USB device. Much like USBs, these can be plugged into your system and your crypto holdings can be transferred to these wallets. Mainstream or popular Crypto assets like Bitcoin, Ethereum, Cardano, Ripple are usually easy to store but newer ones may or may not be supported.
Pros: Safety is paramount, can’t be hacked.
Hot Wallets
Let’s go back to our 100$ analogy. Whilst our value was being stored digitally, the debit card enabled us to use it partially or completely. To understand better, we can frame it this way - the Debit card is continuously connected to the account where 100$ is stored. When you swipe your card, a real-time balance update occurs.
Similarly, hot wallets function in the crypto-verse. They are usually created when you sign up on a hot wallet app ( like metamask or trustwallet), or when you sign up on a Crypto Exchange platform. Hot wallets stay connected to the internet in real-time and can facilitate immediate transactions, storage of tokens and support almost all Cryptos out there - new or old. Hot wallets are pretty safe, but the fear of getting hacked & losing all your Crypto is always there.
Pros: Immediate & Ready access to Crypto; doesn’t have to be plugged in to work always.
Hot wallets can also facilitate Staking, but that’s a story for a different read :)