Hot vs. cold wallets

A hot wallet keeps your keys on a device that connects to the internet. A cold wallet keeps them offline. The difference is the main trade-off between convenience and safety.

Hot wallets

A hot wallet is an app on your phone or computer, or an extension in your browser. The keys sit on a device that is online most of the time.

Strengths

Free and quick to set up
Always with you, ready to pay or receive
Works easily with apps and websites

Weaknesses

Malware on the device can copy keys or change what you sign
A phishing site can reach it in one click
Phones are lost, stolen and broken

Cold wallets

A cold wallet stores keys on something that does not connect to the internet. The most common kind is a hardware wallet, a small device built for this one job.

When you send coins, your phone or computer prepares the transaction. The hardware wallet signs it inside the device and passes back only the signature. The private key never leaves.

Strengths

Keys are out of reach of online attackers
You confirm each transaction on the device's own screen

Weaknesses

It costs money
Sending takes more steps
The device can be lost or damaged, so the seed phrase backup is essential

Side by side

	Hot wallet	Cold wallet
Keys kept	On an online device	Offline
Cost	Usually free	A one-off purchase
Best for	Small amounts, frequent use	Savings, rare use
Main threat	Malware and phishing	Losing the device and the backup

Pocket and safe

Guidance from bitcoin.org treats a wallet like cash. Keep "only small amounts" on your phone or computer for everyday use. For savings, it says an offline wallet "provides the highest level of security".

You carry a little cash in your pocket and keep the rest somewhere secure. Many people run their crypto the same way: a hot wallet for spending and a cold wallet for holding.

What cold storage does not fix

A leaked seed phrase. If someone gets the words, the device is irrelevant.
Signing something harmful. If you approve a malicious transaction on the device, it will be signed. Read the screen.
A bad backup. A hardware wallet with no tested backup is one accident from total loss.

Two separate questions

Hot or cold is about where keys are stored. Custodial or self-custody is about who holds them. Exchanges use both hot and cold wallets internally, and those are still custodial.

Do you need a cold wallet?

A rule of thumb: if losing the amount would hurt, it deserves cold storage. If it is spending money, a well-secured hot wallet is reasonable. Module F covers setting up both.