The online storage of private keys allowing for quicker access to cryptocurrencies. *see Cold Storage.
What Is Hot Storage?
Hot storage refers to cryptocurrencies stored on hot wallets for quicker access. It is the opposite of cold storage, which describes crypto stored on non-custodial wallets offline. Hot storage, on the other hand, is the storage of crypto on sources connected to the internet. Although it is generally considered slightly riskier, it is an indispensable tool for crypto investors to navigate cryptocurrency markets.
Pros and Cons of Hot Storage
Hot storage has several pros and cons compared to cold storage.
Pros of Hot Storage
Hot storage is more convenient since hot wallets are connected to the internet. That means users can easily connect hot wallets, like MetaMask, to applications like decentralized exchanges and trade from their hot wallet without giving up custody of their coins. Although this is also possible with cold storage, it takes more time and is significantly less convenient to connect a cold wallet to exchanges.
Furthermore, hot storage is free and, therefore, a useful alternative for users that want to remain flexible with their coins. Cold storage requires the purchase of a cold wallet, which can be up to $200. It is also far easier to set up a hot wallet, and coins in hot storage can be accessed from anywhere. Furthermore, these wallets are not at risk of physical loss like a cold wallet would be.
Cons of Hot Storage
Hot storage is considered less secure when it comes to hacking. Although hot wallets themselves are secure, users are at higher risk of a phishing attack. Users can also more easily fall prey to signing phony transactions that reveal their wallet details and give attackers access to their crypto.
Hot storage is also subject to certain features being tracked, like IPs and wallet addresses. Some jurisdictions may also block users based on their IP address, making hot storage generally a less private form of storing crypto.
Hot Storage vs Cold Storage
Crypto investors often use both forms of storage for different purposes. Hot storage is more useful for quick access to cryptocurrencies and transferring crypto between different blockchains and protocols. Cold storage is the preferred form for investments that are considered long-term and that users prefer to HODL.
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