Business,Operations,Guide,Module 2.1
Module 2.2
Hot vs Cold Wallets
Another way to classify wallets is by how they store keys and their connection to the internet:
Hot Wallet: A wallet that is “hot” is one that is connected to the internet or generally used on an internet-connected device. Examples include mobile wallets or web browser wallets. Hot wallets are convenient for frequent access and transactions. However, because they are on internet-connected devices, they can be more vulnerable to hacking or malware if your device is compromised. In legacy terms, a hot wallet is like a checking account with online banking – convenient for daily use, but you wouldn’t keep your life savings on a device that is always online.
Cold Wallet: A “cold” wallet keeps the private keys offline, away from internet access, except when signing transactions (and even then, a good cold wallet doesn’t directly expose keys to an online computer). The most common cold wallets are hardware wallets – physical devices (like a USB stick or specialized gadget) that store your keys securely. They often look like small USB drives and require you to connect them to a computer (or phone) when you need to sign a transaction. Because the keys never leave the device and the device runs minimal firmware, it’s much harder for a remote attacker to steal your keys. A cold wallet is analogous to a safety deposit box or a vault – very secure storage that you only access when needed. Bittrees suggests using hardware wallets for long-term storage of significant assets or for keys that control critical systems (often in combination with multi-signature, discussed in
Module 3. As an operations team member, you might not use a hardware wallet immediately, but it’s important to know what they are as the gold standard of self-custody security.
Often, individuals and organizations will use a combination: a hot wallet for small, everyday funds (petty cash, so to speak) and a cold wallet for the treasury or savings. The hot wallet might be a simple app, while the cold wallet could be a hardware device stored safely. Bittrees policy is to always prioritize security for official funds: “Self-custody is the most important thing, ”and using hardware (cold) storage whenever feasible is highly encouraged.