Hot wallet and cold storage

A hot wallet is a wallet whose keys live on an internet-connected device. Cold storage keeps keys offline, on a device or medium with no permanent network access.

A hot wallet is a phone app or a browser extension. It’s convenient: you pay in seconds. But the key sits on a device that picks up viruses, fake apps and phishing attempts. An exchange account is also “hot”, except that then the exchange holds the keys.

Cold storage is most often a hardware wallet or a paper or steel copy of the recovery phrase. The key has no way to leak over the network, but the physical risk grows: loss, fire, a forgotten PIN.

The split isn’t rigid. Many people keep a small amount in a hot wallet for spending and the rest in cold storage, like cash in a wallet and savings in a safe.

Why it matters for your family

An amount in cold storage is safer from a thief but harder for an heir. The more sits offline, the more it matters to describe where it is and how it works. The pillar on how to secure crypto explains how to split funds and which mistakes to avoid. For a comparison with keeping crypto on an exchange, see the pillar on exchange vs self-custody.