Hot and Cold Wallets?

There are generally two kinds of wallet classifications in cryptocurrency (hot and cold wallets).

Hot wallets are wallets that favour practical day-to-day use over security. They are are usually more easily accessible and intended for holding small amounts of user funds. They are generally less secure from outside threats or vulnerabilities. Examples of hot wallets are tools like Metamask and Ledger Nano S (for daily use), and accounts on third-party services or exchanges (like the ones used by Coinbase for every-day users).

Cold wallets are wallets that favour security over everyday practicality. They are usually less accessible to use, but are designed to resist more threats and attacks. Examples of cold wallets are Multi-Signature Wallets with their signing keys stored and handled on solely offline computers.

While this may be confusing, some people use hot wallets in their cold-storage setup [insert joke about "warm" setup]. For example, you could use a Metamask account (hot wallet) to sign transactions from your Multi-Signature Wallet (cold wallet). It's up to you to decide what grade of cold-storage you are personally after.

If you have funds you want to put away for safe keeping and rarely touch, you should setup a cold wallet system. However, if you have funds you want to use on a daily basis, you should setup a hot wallet setup, but use it sparingly. Keep enough funds as you need in a hot wallet, and store the rest in cold wallets.

Later on in the book, we have several "recommended wallet setups" that can walk you through the process of setting up a hot wallet or a cold wallet. We'll indicate the specific setups that creates cold wallets with a 🌨 emoji.

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