Understanding Hot Wallets, Cold Wallets, and the True Spirit of Crypto
When it comes to storing cryptocurrencies, there are two main types of wallets: hot wallets and cold wallets.
A hot wallet is an online wallet—connected to the internet and easily accessible. These are convenient for storing the cryptocurrencies you actively use or trade. Exchanges like Binance offer built-in hot wallets, making it easy to buy, sell, or transfer your crypto quickly.
However, for security reasons, it’s highly recommended to store your long-term or inactive holdings in a cold wallet. A cold wallet is offline and acts more like a digital safe or a thumb drive, keeping your private keys disconnected from the internet. This drastically reduces the risk of hacking. As we saw with the FTX scandal, relying solely on custodial or online wallets can come with devastating consequences if the platform fails or is compromised.
My personal setup includes Binance for trading, and a Trezor device as my cold wallet for long-term storage.
What’s Actually Inside Your Wallet?
Perhaps the most interesting question is: what is actually stored inside your wallet?
Cryptocurrencies themselves are never stored within the wallet. They live permanently on the blockchain—a decentralized public ledger. What your wallet holds is the private key: a unique cryptographic code that grants access to your blockchain address. Think of it as the key to a safe deposit box. The crypto stays in the box (on the blockchain), but whoever holds the key (your private key) controls what’s inside.
That’s why protecting your private key is so important. If someone else gets it, they have full control over your crypto. And if you lose it? There’s no password reset button. Your assets could be lost forever.
Why Cold Wallets Still Matter in a “Web3” World
It’s also important to distinguish between wallets that are truly decentralized and those that are controlled by centralized entities—be it platforms, governments, or corporations. Not all “digital wallets” are created equal. Many government-issued or platform-based wallets can freeze or monitor your funds. While they may be labeled as crypto wallets, they often go against the foundational principles of crypto: autonomy, privacy, and decentralization.
Even blockchains themselves aren’t always as decentralized as they appear. In “Bitcoin is Hijacked,” the author explores how mining pools and power players have consolidated influence over what was meant to be a decentralized network.
That’s why, even in today’s rapidly evolving Web3 space, having a cold wallet you control remains crucial. It’s not just about security—it’s about staying true to what crypto was built for: giving individuals control over their own money.
The simplest description of a cold wallet is a wallet that is not
connected to the internet and therefore stands a far lesser
risk of being compromised. These wallets can also be
referred to as offline wallets or hardware wallets.
Example of a hardware wallet.
