There are various wallets out there for storing your cryptocurrencies, all of which can be described as “hot” or “cold”. 

• Hot wallets - these are either standalone wallet applications, the standard wallets offered by your cryptocurrency exchange, or come as a browser extension
• Cold wallets - these are physical hardware devices that store token ownership records offline and bear some similarity to USB sticks and portable hard drives

Since hot wallets are connected to the internet, they offer consistent access to token holdings and market data, making trading and rebalancing a portfolio very convenient. However, constant internet connection makes them vulnerable to hacks and thefts. Still, hot wallets are the more commonly used of the two.

Cold storage wallets are more secure since they store private keys offline and require physical confirmation of transactions. However, the self-encrypted nature of cold wallets doesn’t yield much convenience for trading, they are also more complicated to use and have higher management risks regarding their setup and activation.  

Ultimately, preferences determine use cases for crypto wallets, and if a user values security for large investments they plan on HODLing, then a cold wallet would likely suit them. Conversely, a user participating in day trading or weekly memecoin swing trades would probably prefer a hot wallet because of its convenience and accessibility. 

Knowing the basics of these two distinct wallet types is just the start. This article will go further, attempting to establish the best hot wallet and the best cold wallet for crypto investors. First, we need to show you how they work. 

How Does a Hot Wallet Work? 

To say that crypto wallets “store” cryptocurrencies is a tiny bit misleading. In reality, wallets give access to blockchain transaction approvals and only store the amounts of tokens owned for that wallet address, not the physical tokens themselves. There is nothing physical to be “stored”, so instead, your wallet is like a safe for digital codes that prove your ownership of the digital currencies. 

Crypto wallets contain two cryptographic keys that users need to interact with and transact on the blockchain: a public key and a private key. The public key is the wallet’s address, which enables the network to view the wallet’s holdings and amounts. The private key, a unique 12-24 word seed phrase that acts as a passcode, can only be accessed by the wallet’s owner and enables them to authorize transactions on the blockchain conducted through their wallet. 

Each blockchain, such as Bitcoin, Ethereum, and Solana, acts as a ledger that interacts with public keys to store and maintain all records of token ownership. So technically, when you store Solana or any other crypto in a wallet, you technically still store it on the blockchain. These records are updated every time the allocation of owned tokens shifts between transacting wallet addresses. 

For example, suppose you send 1 BTC to your friend. This transaction is recorded, and the blockchain ledger updates to reflect that your friend’s corresponding wallet address is the new owner of that 1 BTC, and that your balance is 1 BTC less. The 1 BTC isn’t physically stored in the receiver’s wallet, but the record of ownership is. 

Hot Wallets: Custodial vs. Non-Custodial

There are two types of hot wallets: non-custodial and custodial. But, what’s the difference? 

It all depends on the entity that custodies the wallet’s private key. 

Custodial hot wallets are usually offered through centralized exchanges (CEXs) or private blockchains. When you open a crypto account on sites like Binance, Coinbase, and Gemini, the wallets they offer as standard will be custodial. Creating a wallet provided by a centralized authority means that they have custody over the wallet’s private key.

Custodial wallets rely on the security measures of the centralized authorities who offer them. If those measures fail, user assets are compromised. Additionally, while very rare in occurrence, a centralized authority offering a custodial hot wallet could freeze user assets, limit transaction approval, or manipulate the wallet’s signature just because they have access to the wallet’s private key. Within the crypto community, you might see some version of “not your keys, not your crypto”, which references this.

Non-custodial, on the other hand, refers to a lack of third-party custodianship over the wallet’s private key, so the only one who can access it is the person who created the wallet. This places you as your own personal security guard for the wallet. For most seasoned cryptocurrency investors, the security, autonomy, control, accessibility, and flexibility offered through non-custodianship are superior. 

Best Hot Wallet 1: Atomic Wallet

Atomic Wallet is our top choice for a crypto hot wallet due to its prioritization of security, and in-app mechanisms that enable accessible and low-fee trading. 

Security

Atomic Wallet is a hierarchical deterministic (HD) wallet, which means it can generate multiple private and public key pairs from a single seed phrase, known as the master seed. The master seed generates parent key pairs that, in turn, generate child key pairs systematically as many times as the user requests a new address, enabling the generation of unlimited wallet addresses for receiving or sending payments.

Additionally, Atomic Wallet relies on an encryption technique known as AES (Advanced Encryption Standard) to safeguard sensitive user data. AES-protected information is jumbled to render it indecipherable to unauthorized parties. 

AES is set up using a symmetric key, typically a passcode or PIN, that is utilized for both enciphering and deciphering sensitive data. When a user needs to access their encrypted data, they simply provide the symmetric key which enables AES to swiftly unlock and reveal the protected information. 

Lastly, Atomic Wallet supports multi-signature transactions, which require the authorization of multiple parties before a transaction can be executed. When a user initiates a transaction from the multi-signature wallet, it is not immediately executed. Instead, the transaction is broadcast to the network by Atomic Wallet and awaits the required number of signatures. Once the requisite number of signatures is obtained, the transaction is considered valid and can be executed on the blockchain.

Trading Experience

Trading within Atomic Wallet is extremely fluid as this wallet features some of the lowest trading fees out of any hot wallet on the market. Enabled by its integrated DEX that supports a ridiculous amount of trading pairs, Atomic Wallet is designed around complete peer-to-peer trading. 

The Atomic Wallet DEX utilizes atomic swaps to facilitate trustless and secure transactions between users interacting across varying blockchain networks. Atomicity in a swap refers to the transaction never executing in part and only executing in full; in an atomic swap, a proposed trade either goes through or doesn’t. This helps increase trade finality within Atomic Wallet, leading to faster swap times and minimal price slippage.

Best Hot Wallet 2: Trust Wallet

Trust Wallet is a very good hot wallet option for users because of its robust security infrastructure and expansive token support for both fungible tokens and NFTs.

Security

Trust Wallet is non-custodial and stores private keys locally on users' devices, not on any centralized servers. Trust Wallet is open-source, meaning its codebase is publicly available for developers and security experts to review. Similar to Atomic Wallet, Trust Wallet is also an HD wallet.

Finally, Trust Wallet encompasses an inbuilt security tool called the Trust Wallet Security Scanner that proactively notifies users about potentially risky transactions. The scanner assigns every transaction a risk level and flags ones it deems harmful by sending users warning messages.

Token Support

Trust Wallet offers extensive token support across diverse blockchain networks such as Polygon, Solana, Sui, Ethereum, Bitcoin, Binance, Avalanche, and more. Users can effortlessly add new tokens to their wallets by searching for them within the app or importing custom tokens using contract addresses.

Moreover, Trust Wallet enables users to store and manage over 10 million crypto assets, including more than 600 million NFTs, spanning more than 100 blockchains. Users can also stake crypto assets through Trust Wallet to earn yield rewards and qualify for potential airdrops. 

Best Hot Wallet 3: Exodus

Another hot wallet that we recommend is Exodus Wallet, thanks to its sleek design and intuitive user interface. The wallet's layout is organized logically, with clear sections for different assets and functionalities. The design of Exodus Wallet prioritizes visual appeal, featuring modern graphics, icons, and animations. 

A standout feature of Exodus is how it enables users to connect to DApps from within the wallet without ever having to open a third-party browser or extension, greatly enhancing security. 

How Does a Cold Wallet Work?

A cold storage hardware wallet is not connected to the internet and is designed to keep your private keys offline, away from potential online threats such as hacking and malware. Cold wallets also generate key pairs; the public key is used to receive funds, while the private key is used to sign transactions and prove ownership of the funds.

Cold storage wallets can be stored on physical mediums like USB drives, paper, hardware devices, or offline computers. These mediums are not connected to the internet, minimizing the risk of unauthorized access or hacking.

When you want to make a transaction using a cold storage wallet, you typically create the transaction on a device connected to the internet and then send the unsigned transaction data to the cold storage device, where the transaction is signed offline. In short, you have to connect your cold storage to a computer to make transactions. 

After the transaction is signed offline, it is transferred back to the online device, which broadcasts it to the cryptocurrency network. The transaction is confirmed and added to the blockchain ledger, completing the funds transfer.

Multi-Signature Cold Wallets

Multi-signature cold wallets are a newer type of cryptocurrency wallet that requires multiple private keys to authorize transactions. In a multi-signature (multi-sig) cold wallet, the ownership and control of funds are divided among various parties or entities. Each party possesses a unique private key associated with the wallet. 

A predetermined number of private keys must be signed to authorize a transaction from a multi-sig cold wallet. This number is known as the threshold. For example, in a 2-of-3 multi-sig setup, two out of three private keys are required to sign off on a transaction. Multi-sig cold wallets enhance security because they need the cooperation and consensus of multiple parties to authorize transactions. 

Best Cold Wallet 1: Tangem Wallet 

An incredibly innovative hardware solution for offline crypto storage is the Tangem Wallet, a cold storage wallet in the form of a “smart card” that combines software and hardware security measures to protect user assets. 

Tangem Wallet utilizes an advanced standalone microcomputer chip embedded within its physical card design. Upon activation, the chip within the Tangem card autonomously generates a random private key.  

This critical generation process ensures that neither Tangem nor any external entity has access to or knowledge of the private key, enhancing security and preventing unauthorized access to the funds stored on the card.

Private keys generated by Tangem Wallet remain securely stored within the card and are never exposed to third parties. This isolation of private keys within the hardware chip ensures that they cannot be compromised or accessed by external entities, mitigating the risk of theft or fraud.

Instead of relying solely on a seed phrase for backup, Tangem Wallet offers encrypted backup copies with unique access codes. These backup copies are stored on additional Tangem cards, providing users with an extra layer of security for accessing their funds in case of loss or theft.

Best Cold Wallet 2: Ellipal 

The runner-up for best cold storage wallet goes to Ellipal. We recommend this brand of crypto hardware cold wallets to users because of their use of airgapping technology. Air-gapping involves physically isolating a device from external networks like the Internet to minimize the risk of remote attacks and unauthorized access. 

Ellipal hardware wallets achieve air-gapping by storing private keys and performing transaction signing operations offline. Users can generate private keys and initiate transactions on the device without requiring an internet connection. 

The Ellipal Titan is a metal air-gapped cold wallet with no connection to the internet. It supports multiple cryptocurrencies and offers features like QR code scanning for convenient transactions.

Best Cold Wallet 3: SecuX

SecuX provides both highly secure and affordable hardware wallet options for users looking for a cold storage solution. SecuX cold wallets also feature Bluetooth connectivity for more convenience when trading and managing assets. 

SecuX hardware wallets often restrict Bluetooth functionality to specific tasks related to managing cryptocurrency assets, such as initiating transactions or viewing account balances. By limiting Bluetooth functionality to essential operations, SecuX reduces the risk of exploitation by malicious actors.

Final Thoughts on the Best Crypto Wallets 

Choosing between hot and cold wallets depends on individual preferences and investment strategies. 

While hot wallets like Trust Wallet or Atomic Wallet offer robust security features, intuitive user interfaces, and extensive token support, cold wallets like Tangem Wallet or Ellipal provide innovative hardware solutions with advanced security measures, including random private key generation, encrypted backup key copies, airgapping.

By understanding the functionality and security measures of both hot and cold wallets, investors can make informed decisions to safeguard their cryptocurrency assets effectively.