Hot or Cold; What is the Best Bitcoin Wallet?

Hot and cold wallets serve different purposes, and they bring with them different needs for consideration with regard to the level of exposure, or potential exposure, to malicious attacks. Depending on what your intention is, you may choose to opt for one over the other, or even both. Understanding the differences between these is key to identifying the best Bitcoin wallet for your needs.

What is a hot wallet?

A hot wallet is an online wallet which has a means of being connected to the internet. Think of the internet itself as being a source of heat with these terminologies, the further away from the internet you get, the cooler the reference to the wallet is. This will make a little more sense as we look at the different types of wallets.

Any time you are using a service or a website that has an instant pay function built into it, this is a hot wallet. In these cases, you don't actually have complete control of the wallet as you don't hold the private keys (or password) to that wallet - the website does - and this is extremely risky if you are using this method to store your wealth.

Hot wallets are also the wallets on the various exchanges that operate online like KuCoin, Binance, and Huobi; in the article Which Are The Best Cryptocurrency Exchanges we take you deeper into the various aspects of exchanges that you should consider. Never leave large amounts of your wealth on exchanges for longer than you need to in order to complete a trade. Always store your wealth in cold wallets, and take every step possible to eliminate exposure of sensitive information.

It's not just the websites and exchanges you need to consider when using your credentials to access your funds online, you also need to consider the security of the computer or device you are using to gain access to those funds. Has your computer been infected with malware, spyware, or keyloggers? Have you got a good antivirus and spyware system installed and maintained on your computer or device?

Also, consider other third party websites and software that you use. Your email can be a point of vulnerability also. Your email could have been pwned, and this can leave you open to attacks also when relying on hot wallets.

There are risks when operating a hot wallet, from a real-world perspective the best analogy I can give you is it is like having a pocket full of cash, and you, unfortunately, get mugged. You didn't set out with the intention of this happening, but because of the way in which your money was stored, it proved to be easy access for the mugger.

It is an unfortunate fact that the majority of people who have experienced a loss and wallet hack have been in the position of holding their Bitcoins in a hot wallet. It is possible to hack a wallet, not to hack Bitcoin in this regard.

A hot wallet, in my opinion, is not the best Bitcoin wallet for the storage of large amounts of Bitcoin. If you are using a hot wallet to facilitate instant pay functions or active trades, then you accept that there is a risk with that type of wallet, and hopefully, you only keep what is completely necessary in the hot wallet for the required time.

What is a cold wallet?

A cold wallet is a wallet that has no physical connection to the internet and is protected by what is known as an 'air gap'. Effectively, what you are doing is you are keeping your crypto offline. There are a number of ways that you can use cold strage, or cold wallets to keep your crypto safe. A few methods include:

• Using a paper wallet
• Using a physical coin (more about this later)
• Using a hardware wallet such as a Trezor or a Ledger
• Using a USB drive

There are some inherent problems with cold storage wallets, which can be relatively easily overcome. These are primarily around seeds and backup phrases being exposed, lost, damaged, or stolen. Some of these could include the following:

Is writing your backup phrase or seed on a piece of paper the best Bitcoin wallet protection?

For many, it would seem much easier to simply write down the recovery phrase or seed for their wallet on a piece of paper and the put in a drawer somewhere in their house that the kids don't go. There is a higher level of risk management that is required to deal with here.

The protection of your private keys, recovery phrase, and seed needs to be looked at from a much bigger picture perspective. Consider the following questions and how you would deal with them. You may find that you come up with a list that is more extensive than the one provided here. If there are some things that you would consider that has not been stated here, add them in the comments below, including how you think they could be best managed.

Potential Problem	Potential Solution
Someone who can see it could steal it.	Store this in a secure location. Break it up into multiple parts. Apply a second layer of ciphering.
Your handwriting may be illegible.	Print clearly onto paper that has individual boxes for each character you are writing.
You may have errors in your writing.	Be painstakingly diligent in ensuring you transcribe your codes exactly as they are.
Your records can be damaged in a fire.	Store multiple copies of your records in multiple secure and trusted locations.
Your records can be damaged in a flood.	Store multiple copies of your records in multiple secure and trusted locations. Protect your files by laminating* anything written on paper.
Your records can deteriorate and rot.	Store multiple copies of your records in multiple secure and trusted locations. Protect your files by laminating* anything written on paper.

Is printing your backup phrase or seed on a piece of paper the best Bitcoin wallet protection?

We often place a lot of trust in the devices we use every day. Printing private documents at work for some can be a bit of a stressful thing. You need to get into the office early, before anyone else gets there, and hit print just before you dash over to snatch your pages out of the tray. Heaven forbid that the boss sees ou printing out stuff for personal use!

Relying on a work printer, or any other printer that is on a network has many more aspects of risk associated with it that you might not have thought of.

Below, we will consider a few of these. If you have some more and would like to include them in the list, add them to the comments below with the strategies you would use to get around them.

Potential Problem	Potential Solution
Someone who can see it could steal it.	Store this in a secure location. Break it up into multiple parts. Apply a second layer of ciphering.
Inkjet printer inks are soluble and will run when they get wet.	Protect your files by laminating* anything printed using an inkjet printer. Use a laser printer.
You may be connected to a network printer.	Avoid using a network printer if possible. Where you only have access to a network printer, only use a network printer that you know and trust. Learn how to clear the memory on a network printer to remove records of the file. Really, with all of that you're still not secure so just don't use a network printer at all for this job.
Your records can be damaged in a fire.	Store multiple copies of your records in multiple secure and trusted locations.
Your records can be damaged in a flood.	Store multiple copies of your records in multiple secure and trusted locations. Protect your files by laminating* anything printed on paper.
Your records can deteriorate and rot.	Store multiple copies of your records in multiple secure and trusted locations. Protect your files by laminating* anything written on paper.

* Keep in mind that laminating paper is not a guarantee that it will be indefinitely protected. Laminate can fail as it has the ability to be punctured, incorrectly sealed, and separate due to manufacturing defects and quality issues.

Is engraving or etching your backup phrase or seed on to metal plates the best Bitcoin wallet protection?

Engraving your recovery phrase or seed may be one of the more long-term approaches to ensuring this information is protected and available. However, there are some considerations that need to be made before you go down this road.

A while back I thought it would be a great idea to get my recovery phrase engraved, but there were two things that troubled me about this; first, the engraver - I didn't know them from a bar of soap and as a result, I had zero trust in them. Like I was going to write down my seed and give it to some random!? The second was the cost, this was going to set me back four times more than the cost of buying a Ledger Nano S! I may as well just hand over my Bitcoins!

Potential Problem	Potential Solution
Someone who can see it could steal it.	Store this in a secure location. Break it up into multiple parts. Apply a second layer of ciphering.
Prying eyes - you may need to commission a third party for the job.	Break up the job into multiple jobs across multiple parties - don't give it all to one person. Buy the equipment to do the job yourself.
Some metals can rust and corrode.	Choose a metal or alloy that is not prone to corrosion. Metals or alloys like stainless steel or brass are good.
Your records can be damaged in a fire.	Store multiple copies of your records in multiple secure and trusted locations. Choose metals or alloys that do not have a low melting point. Choose metals or alloys that will not become brittle when subject to heat. Don't use lead, magnesium, aluminum or tin as these will not survive a fire.
Your records can be damaged in a flood.	Avoid using metals that are subject to rust and corrosion. If burying metal plates, submerge them in oil inside plastic containers.

Is storing your backup phrase or seed on your computer in soft copy the best Bitcoin wallet protection?

You may have a lot going on in your life and work from your computer more than others. This can cause you to have a greater sense of trust in what your computer does for you on a day-to-day basis. It's never let you down before, you use it for so many things, and it has proven to be so versatile.

The problem with technology is that the devices and machined we rely upon do not last forever. They are prone to breaking down, becoming infected with malware, or being a nice little bounty for some opportunistic burglar sneaking through your house.

If you depend heavily on any single device, this then has a very real potential to become a weak point in your risk management strategy. How will you get around the following issues should they arise?

Potential Problem	Potential Solution
Someone who can see the file could steal it.	Secure this with a layer of encryption and a password that is not easily guessed.
Your machine or device may be exposed to malicious attacks.	Keep spyware and malware programs up to date. Never visit dubious sites that could be the source of hacks, phishing scams, and the like. Never store private keys or recovery seeds on a machine that has been connected to, or will be connected to the internet.
Disks and hard drives can become corrupted.	Have multiple backups in different trusted and secure locations.
Your hardware and storage devices can be exposed to physical attacks.	Ensure that there are no strong magnets in the area and take every step possible to ensure there never will be.
Your hardware and storage devices can be stolen.	Store your hard drives or USBs in multiple trusted and secure locations. Ensure that you have robust encryption layers and very strong passwords to protect your data.
Your hardware and storage devices can be damaged in a fire.	Store your hard drives or USBs in multiple trusted and secure locations.
Your hardware and storage devices can be damaged in a flood.	Store your hard drives or USBs in multiple trusted and secure locations.
Your hardware and storage devices can be accidentally damaged by some other means.	Don't have accidents - good luck with that one!
Your computer or device can crash and be unrecoverable.	I refer to my statement above. Not to be smug about this in any way, keep in mind that computers and devices don't last forever. What's your backup plan if these fail?
Your disposed computer or device can be accessed by someone else.	Simply deleting the files on your hard drive are not enough to erase the records. With the right tech, these can be recovered.