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“Hot” vs. “cold” storage refers to whether the wallet is connected to the internet.
spending money.You may keep a small amount of Bitcoin you use to trade on exchanges, pay expenses, or send money to friends and family on a
hotwallet, so it is available the moment you wish to use it. It would be best if you did not store more value in your hot wallet, then you might keep in cash in the physical wallet in your back pocket. If you plan on making online purchases with bitcoin, a hot wallet is an excellent place to store those funds for immediate availability.
savingsand long-term investments for added security. A properly configured cold storage wallet will be able to store bitcoin and other cryptocurrencies for years. If hot wallets are like the cash in your wallet for spending, then cold storage wallets are the cash you keep in a safe, under the mattress, or in a safety deposit box.
custody.One of the unique features of Bitcoin is the ability to
be your own bank.To do that, you need to have a Bitcoin wallet that allows you to maintain control of the keys that unlocks your Bitcoin. When it comes to storing your Bitcoin, in addition to
cold,there are two categories that refer to who has ultimate control over your Bitcoin, custodial vs. non-custodial wallets.
custodyof a wallet owned and controlled by the company providing this service. Many online exchanges such as Gemini, Kraken, or Coinbase will store your Bitcoin in their custodial wallets so that you can place trades. Because storing your Bitcoin with services like these is like keeping your money in a bank, it is yours. Still, it is ultimately controlled by the service provider who can deny and freeze transactions (and Bitcoin stored with a custodian does not carry the same protections as banks in terms of FDIC insurance).
keysto unlock and transact with your Bitcoin is stored on a device you own, or even on a piece of paper. An example of a non-custodial wallet might be a wallet
appyou download on your phone. Please note that when you choose to keep custody of your Bitcoin, you are responsible for backing it up. If you lose access to your backup or
seed phrase,you will lose access to your Bitcoin if the device goes missing or is destroyed.
be your own bankwith a non-custodial wallet app or device, make sure to do some research on the product or service that you choose. If you purchase any hardware wallet devices, make sure to buy from a trusted source, as there have been instances of counterfeits that can cause your Bitcoin to be lost or stolen.