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Difference between hot and cold wallets

Hot or Cold: understand the difference between these types of crypto wallets

A crypto wallet is essential to manage your cryptocurrencies. Consequently, knowing which type of wallet you need becomes fundamental to properly manage your funds.

by Maluh Bastos
December 14, 2022
in Global, Wallet
Reading Time: 9 mins read
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In the crypto world, there is another question that can mislead the answer: hot or cold?

Before you answer about the weather, keep that in mind: here, we are talking about cryptocurrency wallets.

Even though I hardly doubt that this would be a topic to start a conversation – especially because this is personal and should not be shared as small talk – this knowledge must be imprinted in your mind so you can make smarter choices for your crypto investments. 

But let’s start from the beginning.

What is a Crypto Wallet? 

A cryptocurrency wallet is a software or physical device that will help you store your crypto. 

According to the report made by Grand View Research, as of August 2022, the number of crypto wallet users reached 84.02 million worldwide, from 76.32 million users in August 2021. The increasing growth in crypto wallet usage can be attributed to the growing use of cryptocurrency in general.

(source: Grand View Research) 

The Market size value of crypto wallets in 2022 was USD 8.42 billion and the research made a revenue forecast for 2030 of USD 48.27 billion.

With time, more interest and more needs from the users, crypto wallets developed more features other than just helping you store your crypto. 

Swapping, buying, selling, sending, and receiving are just a few of the functionalities that some crypto wallets offer nowadays. 

Of course, that is the case for the Klever Wallet app, now going to its fifth version, the K5, and the even newer Klever hardware wallet, KleverSafe. 

Custodial vs. Non-Custodial Wallets

But before we jump into the considerations of hot/cold and how Klever provides solutions for both, it is also important to remember that wallets have another kind of segment: custodial and non-custodial. 

And what is custody? 

Custody means ‘ownership’ in the crypto world. When you have custody of some asset, you have the complete ownership of it. 

You can’t have ownership without having custody of something. This leads us to the definition of the Custodial and Non-Custodial wallets.

The Custodial wallets (usually bound with Exchanges) have custody of the crypto that you stored in that wallet and Non-Custodial keep the full ownership of the cryptocurrency to you. 

Custodial wallets and Exchanges work similarly to a regular bank: it provides liquidity and manages operations with the clients’ assets to ‘make the money go round’ into that system. 

As for Non-custodial wallets, they only provide the service that will allow you to manage your crypto, but they do not own any of your assets. 

Actually, they don’t even have access to it. 

And then comes the easiest way to differentiate a custodial and a non-custodial wallet as a user:

  • If it requires you to fill in information such as email, telephone number and more, it is probably a custodial wallet, where your information will be stored in the company’s system. 

This can lead to some facilitations such as if you lose your password, they’ll provide you with a new one to access your funds. 

  • If it does not require any personal information and gives you a SEED phrase to generate private keys, this means that the wallet is non-custodial. 

It’ll give a sequence of random words to take notes (preferably offline, on a piece of paper for instance) and that sequence will generate a big code that will be your private key. 

This private key will not be visible or accessible, not even by the company that provided you with that technology. 

Example of creating a private key through a SEED phrase in the Klever wallet app

This means that if you lose this sequence of words, you won’t be able to restore your wallet in case you update your phone/computer, get a new one or even if it breaks. 

It is a safety measure adopted to guarantee even more safety in this online version of crypto wallets.  

Okay, so what’s that thing about ‘hot’ and ‘cold’ wallets?

Good question. 

Going straight to the point:

Hot wallets are connected to the internet. Cold Wallets are not connected to the internet. 

There.

But to go a little further, we must remember the implications of being connected to the internet or not. 

Hot Wallets

Hot wallets represent a massive group of wallets in the market, especially because they are easier to download, free of charge most of the time and more practical for daily use. 

As previously mentioned, they are connected to the internet, and they provide more accessibility and practicality to the users’ daily lives. 

According to the report made by Grand View Research which analyzes the crypto market, “the hot wallets segment dominated the market in 2021 and accounted for a revenue share of more than 55.0%”. 

The research includes in the hot wallet category web-based, mobile, and desktop wallets which “are easy to access and downloadable on smartphones, desktops, or other devices”.

The Klever wallet app for instance, is the main character of the Klever Ecosystem, with more than 3.5 million users worldwide and hundreds of thousands of daily active users (DAUs) throughout the ecosystem. 

K5, the KleverChain crypto wallet is non-custodial and super user-friendly 

The Klever Wallet was originally designed to solve two of the most critical problems in

cryptocurrency today: crypto security and user experience. 

In its new and improved version of the Klever Wallet, the K5, it’s bringing both security around blockchain transactions as well as a simple and intuitive user experience to a whole new level. 

The K5 also comes with native integration of KleverChain and all its features, including but not limited to:

  • Send, receive and hold KLV and all KDA tokens
  • Staking on KleverChain
  • Create a token on KleverChain
  • Participate in network activities
  • Change Staking rewards.

This adds up to the already well-established features such as:

  • Swap crypto
  • Send/Receive crypto
  • Charge crypto 
  • Unstoppable Domains feature
  • Travala feature

And more. 

Cold Wallets

Even though cold wallets represent a different percentage of the market, there’s a reason for it: they require more investment and a little bit more diving into the crypto world. 

However, that investment provides more safety, as cold wallets are devices that are not connected to the internet and therefore are less susceptible to hacking. 

To invest in a hardware wallet is to invest in the safety of your assets. 

In KleverSafe (Klever’s Hardware Wallet) website, it states that “to have a wallet offline can be of great benefit because it gives less exposure to sensitive information such as your cryptocurrencies (aka your money)”. 

The KleverSafe symbolizes the ultimate hardware wallet to store, buy, exchange & grow your crypto assets from beginners to enthusiasts providing:

  • Quick setup
  • +200 accounts
  • Offline private key
  • Sophisticated & Safe design
  • Certified security CC EAL5+

View of KleverSafe inside the device

KleverSafe also connects the user directly to the Klever Wallet app so all their crypto management will be done in the efficient and Klever way. 


Which wallet should I have, then? 

Well, it depends really. 

Regarding the adoption of a KleverSafe for instance, the Klever team reinforces:

“Everyone should definitely consider [having] it, especially once the user gets to a higher level of investment in crypto.

Even though digital wallets such as the Klever Wallet app already have strong safety, to have an offline device to access your crypto account adds an extra layer of security to your investments”. 

In simpler words:

If you enjoy the dynamism in dealing with your digital assets as well as the safe management of your crypto in a more user-friendly way: go with a hot wallet. 

On the other hand, if you’re looking for something more stable and safer for storage of big amounts of crypto: try the cold wallet, then. 

In the end, of course, this would be your choice since you know better than anyone how much and in what way you can invest and direct your crypto funds. 

Tags: kleverklever wallet
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Maluh Bastos

Maluh Bastos

Journalist, content writer and producer - and DJ in spare times - always looking to make some noise in the world. Crypto and blockchain writer, eager to learn more every day and hoping to contribute to Klever's mission to change people's lives through financial freedom.

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