Crypto Wallet 101: A Beginner's Guide to Securely Storing Digital Assets

June 10, 2023

If you've recently purchased cryptocurrency and are researching ways to store it safely, you'll need to decide whether to store it in a hot or cold wallet or in a combination of both. This raises the question, what is the difference between the two? To summarize, a hot wallet is connected to the internet, which means it may be susceptible to online attacks and could result in loss of funds. However, it offers faster transactions and makes it more convenient to trade or use your crypto. On the other hand, a cold wallet is typically offline and more secure but less convenient. So, which type of wallet should you choose? Keep reading to explore your options and find out what works best for you!

Hot Wallets: Pros and Cons

Hot wallets are cryptocurrency wallets connected to the internet. A hot wallet allows users to store, manage, and trade crypto assets in real-time, making it a popular choice for those who need to access their funds quickly. A common example of a hot wallet is the Coinbase Wallet. It is a mobile app that allows users to store, manage, and trade various cryptocurrencies such as Bitcoin, Ethereum, and Cardano. As with everything in life, there are both pros and cons associated with using a hot wallet. In this section, we'll explore and break down the details of a hot wallet so that you can make an informed decision about storing your cryptocurrency.


1. Easy to Use: One of the main benefits of a hot wallet is that it is user-friendly and easy to navigate. Most hot wallets come with an intuitive user interface, making sending and receiving crypto assets simple. Additionally, hot wallets are generally more accessible. They are available as a mobile app or web-based service, making them all the more convenient, especially for on-the-go users.

2. Fast Transactions: Hot wallets offer fast transaction times, making them ideal for daily use. Since they are connected to the internet, you can easily send and receive funds with a few clicks. Compared to cold wallets, hot wallets are advantageous as they eliminate the need to wait for confirmation times. This makes them an ideal choice for traders and business professionals who require prompt fund transfers.

3. Availability: Hot wallets are widely available and generally provide support for most cryptocurrencies. Once you know which tokens you want to hold, it's pretty easy to find a hot wallet that supports them. Additionally, hot wallets are often compatible with multiple operating systems and devices, giving you more flexibility when it comes to managing your assets.

4. Easy Backup and Recovery: Most hot wallets offer easy backup and recovery options, which can be a lifesaver if you lose access to your wallet. For instance, many hot wallets provide a seed phrase or a private key that you can use to recover your wallet if your device is lost or stolen.


1. Security Concerns: One of the most significant drawbacks of a hot wallet is that it is connected to the internet, which makes it more vulnerable to hacking, malware, phishing scams, or other cyber threats. 

2. Limited Control: Hot wallets are often managed by a third-party provider, which means that you don't have complete control over your assets. In the event that the provider goes bankrupt or suffers a data breach, your funds could be at risk.

Cold wallets: Pros and Cons

Cold wallets, also known as hardware wallets, are one of the more secure means for storing cryptocurrencies. They operate offline, meaning that they are not connected to the internet and are, therefore, less vulnerable to hacking attempts and other online security threats. Instead, they rely on physical security features, such as encryption and private keys, to keep your assets safe. While cold wallets may not be as convenient or easy to use as hot wallets, they are an ideal choice for long-term storage and for those who prioritize security above all else. One example of a cold wallet is the Ledger Nano S. It is a popular wallet that supports multiple cryptocurrencies and offers a high level of security through its offline storage and advanced encryption features. As cold wallets operate offline, meaning that they are not connected to the internet, are therefore less vulnerable to hacking attempts and other online security threats. In this section, we will explore the pros and cons of cold wallets, as well as how they compare to their hot wallet counterparts.


1. High Security: Cold wallets are not connected to the internet, which makes them less vulnerable to hacking and other cyber threats. They are considered to be the most secure way to store crypto assets as they are kept offline, making them virtually immune to cyber-attacks.

2. Anonymity: As cold wallets are not tied to a specific user's identity, they offer greater anonymity when making transactions. This can be important for users who prioritize privacy and anonymity when using cryptocurrencies.

3. Complete Control: Since cold wallets are offline, users have complete control over their assets. There is no reliance on a third-party provider to manage the wallet, which means that users have complete autonomy over their crypto assets. However, it should be clarified that some cold wallets can be purchased from third-party providers. In such cases, the user relies on the third-party for the hardware but retains control over their private keys. It’s important for us to highlight this especially given the recent controversy over Ledger’s recent firmware updates.


1. Less Convenient: Cold wallets are less convenient than hot wallets, as they cannot be used for day-to-day transactions. To use a cold wallet, users need to physically connect it to a computer, which can be time-consuming and inconvenient.

2. Slower Transactions: As cold wallets are not connected to the internet, transactions may take longer to process as they require manual confirmation. This can be a disadvantage for users who require fast transactions.

3. Limited Availability: Not all cryptocurrencies are compatible with cold wallets, so users need to ensure that their chosen wallet supports their desired currency. Additionally, cold wallets may be less widely available than hot wallets, limiting users' options when choosing a wallet.

Understanding Warm Wallets

Warm wallets are cryptocurrency wallets that provide a unique blend of transaction speed and security. They offer the fast and convenient transaction processing of hot wallets while providing an additional layer of protection like cold wallets. For instance, Krayon provides you with an MPC-based wallet where your private keys are sharded and the key shards are distributed. Even if a hacker were to steal a single key shard, they wouldn’t be able to gain control of your wallet. This means that transactions can be processed quickly and automatically without the need for manual intervention.

Overall, warm wallets offer the best of both worlds - the speed and convenience of hot wallets with the added security and control of cold wallets. They are an excellent choice for anyone who wants to efficiently manage their cryptocurrency holdings while also maintaining a high level of security and control over their assets.

You can learn more about MPC here.

Factors to Consider When Choosing a Crypto Wallet

Cryptocurrencies are becoming increasingly popular, so choosing a safe, secure, and reliable cryptocurrency wallet is essential. This should be a top priority since a wallet is needed to send or receive Bitcoin and exchange other cryptocurrencies. So how do you choose the best crypto wallet for you? Let's look at a few factors to consider before making a purchase.


As a software application, a cryptocurrency wallet should have the latest security features. It's better to choose a wallet that asks for a security pin or offers two-factor authentication, such as face recognition or fingerprint identification.


Like with any product in the market, reputation is essential when it comes to choosing a cryptocurrency wallet. Some wallets may have vulnerabilities that can expose your investments to danger. Therefore, selecting a wallet with a good reputation and is not known for any vulnerabilities is crucial.

Private Key Access

Alright, let's get into the nitty-gritty of private keys. Simply put, private keys are like secret codes that give you access to your cryptocurrency funds. If you don't have control of your private keys, you won't be able to control your digital assets. So, it's essential to ensure that your crypto wallet gives you full access to your private keys. Think of it like a key to your front door. If you give someone else the key, they can come into your home whenever they want. The same thing applies to private keys. If someone else has access to your private keys, they can access your crypto funds and do whatever they want with them. And you definitely don't want that! So, always make sure that you have complete control over your private keys. This means choosing a wallet that allows you to access, manage, and back up your private keys.

Customization of Fees 

Some of the best cryptocurrency wallets have a feature that adjusts the fees payable to blockchain validators and miners. It's always convenient to have the option to customize the cost you are going to pay for every transaction. Qualitative options like slow, medium, or fast are worth considering. For instance, choosing a faster service will result in higher fees payable but offer faster transactions. It is always a convenient way to have an option where you can customize the cost you are going to pay for every transaction.

Backup features

Choosing a wallet that enables easy management and backup of your private keys is an important factor to consider. While it's crucial to have access to your private keys, keeping them safe and secure can be a challenge. Writing them down on paper is a common solution, but this can become tedious and cumbersome if you have multiple wallets. Look for a Bitcoin wallet that has private key management capabilities and backup features to simplify this process.

Anonymity and Transparency 

When choosing a Bitcoin wallet, it's important to consider anonymity and transparency. For beginners, selecting a wallet that ensures their transactions remain private or transparent is crucial. Additionally, it's essential to choose a wallet that protects your personal and financial information and keeps it anonymous. This is particularly noteworthy if you prefer not to share personal information with others.

Interface design 

When choosing a wallet, it's necessary to consider the user interface (UI). Some wallets have simple interfaces, while others are more complex. The UI affects the features and operations of the wallet and how easy it is to navigate. Avoid choosing a wallet that is overly complex, as it can cause problems and be difficult to understand. Instead, opt for a wallet with a simple and accessible UI.

In a Nutshell, How to Choose the Right Wallet

Choosing the right cryptocurrency wallet can be a daunting task. It can be quite overwhelming to go through a sea of options trying to figure out which one best suits your needs. To begin with, you must determine if you require a hot, warm, or cold wallet. Let's take a step back and summarize what we've learned so far and try to make sense of all the information.

Hot wallets refer to software-based wallets that are connected to the internet, providing users with convenient access to their funds. Although hot wallets allow for quick access, they are more vulnerable to hacking and other security threats since they are connected to the internet. Hence, it's suggested to use hot wallets for smaller amounts of cryptocurrency that are used regularly.

Warm wallets are a hybrid between hot and cold wallets. They offer a balance between convenience and security. Warm wallets store private keys offline but are still connected to the internet for easy access. They are an excellent choice for those who are looking to store larger amounts of cryptocurrency but still need to access their funds regularly.

Cold wallets are hardware-based wallets that are entirely offline. They offer the highest security, given that they are not connected to the internet. Cold wallets are recommended for those who need to store larger amounts of cryptocurrency for a longer period. However, they are known to be less convenient to use as they require physical access to the wallet to manage your funds.

Apart from the traditional classification of hot, warm, and cold wallets for cryptocurrencies, custodians and providers of custody technology have the flexibility to utilize a mix of storage methods. For instance, some custody providers store the majority of clients' funds in offline storage that is highly secure while making a small portion readily available through online hot or warm wallets.

It's crucial to do your research and select a wallet that meets your specific needs and preferences. By understanding the different types of wallets available, and considering factors such as security, ease of use, and backup options, you can narrow down your options and find the one that best suits your needs!

Krayon provides MPC-based wallets to teams, startups and enterprises. MPC-based wallets are often used by enterprise clients including large financial institutions, this is testament to the fact that MPC-based wallets are by far the most secure wallets available today. They also provide the best combination of accessibility and security of any other wallet type on the market. If you're looking for a secure wallet for your digital assets, then try Krayon's wallet solution today. It's free to sign up and takes less than a minute.

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