WALLETS & SECURITY

Which Cryptocurrency wallet is right for you?

Now that we know what a Cryptocurrency wallet is, as well as the three types of crypto wallet that investors can choose from, it’s time to discover which cryptocurrency wallet is right for you.

For those of you that aren’t familiar with either of these things, check out our “What is a Cryptocurrency Wallet?” lesson here.

Hot Wallet

Quick Recap:

Hot wallets are accessible from almost anywhere; your phone, computer, or browser, and are 100% connected to the internet at all times. Known as the most convenient wallet type, users can simply press a button and transact their funds nearly instantly. However in this case, speed & convenience comes at a trade-off to having much higher security risks.

Pro's and Con's of a Hot Wallet

Here are the Pro’s & Con’s of choosing a hot wallet:

Pro’s of a Hot Wallet

Con’s of a Hot Wallet

Instant access → Perfect for quick trading or payments.

High hack risk → Online exposure makes them prime targets.

User-friendly → Most have clean interfaces and easy onboarding.

Device dependency → If your phone/laptop is compromised, so is your wallet.

Integration → Required for using DeFi platforms, NFTs, staking protocols.

Centralisation risk (for exchange wallets) → You don’t own the keys, or the Crypto.

Free to start → Most hot wallets are free to download and use.

Short-term only → Not suitable for large or long-term storage.

Benefits & Use Cases of a Hot Wallet

Hot wallets possess a number of benefits & use cases that are tailored towards the everyday investor, making the overall cryptocurrency experience much smoother than other wallet variants. These are some of the environments where a hot wallet is best suited for an investor:

⚡ Convenience: Simplistic Crypto investing process.
💧 Liquidity: Quickly buying, selling, or swapping coins.
🌐 DeFi Access: Yield farming, lending, NFT marketplaces, token launches.
🔄 Active Trading: Perfect for frequent traders who need speed.
📱 Mobile Access: Manage assets anytime, anywhere from your phone or laptop.

Risks & Vulnerabilities of a Hot Wallet

With any benefit comes a risk aspect, and Hot wallets are no different. Whilst some may seem less obvious than others, all risk profiles have their own unique rankings to the individual investor.

🎭 Phishing attacks: Fake websites and apps trick users into entering their seed phrase.
🦠 Malware/Spyware: Malicious software that reads your clipboard, replacing wallet addresses.
💥 Exchange hacks: Centralised platforms holding millions of hot wallets are prime hacker targets.
🙈 Human error: Sending funds to the wrong chain or address.
⏳ Custody Risks: Keeping large balances in hot wallets increases exposure over time.
🔑 No Keys, No Crypto: You don’t own the keys or seed phrase… the exchange does. If something was to happen to the exchange, you’ll be the first affected.

Is a Hot Wallet Right for You?

Whilst hot wallets are among the easiest to manage, they might not be the ideal option for everyone. Here are the For & Against of selecting a hot wallet:

👤 Who Should Use a Hot Wallet?

🚫 Who Shouldn’t Use a Hot Wallet?

💹 Active Traders: Constant access to funds for quick moves.

📦 Long-Term Storage: Better kept in cold wallets.

🧪 Experimenters/Learners: Safe for small amounts while testing the crypto ecosystem.

💰 Life Savings: Too risky to store large amounts.

💳 Daily Spenders: Using crypto for payments, tipping, and transfers.

🖥️ Low-Security Users: If you can’t maintain strong device & online protection.

Best Practices for Hot Wallet Safety

And finally, our best practise tips for those of you that decide that a hot wallet is right for you:

1️⃣ Only keep small balances (think “wallet cash,” not savings).
2️⃣ Always enable two-factor authentication on exchange wallets.
3️⃣ Double-check URLs and apps before logging in.
4️⃣ Never store seed phrases digitally (screenshots, cloud storage, notes apps). Write them down on paper.
5️⃣ Use hot wallets as transactional tools, not as financial vaults.

Warm Wallet

Quick Recap:

A warm wallet sits between a hot wallet (always online) and a cold wallet (completely offline). It provides a balanced solution between investors who are looking for a more secure setup than a hot wallet, but still easier to access than cold storage. Unlike a hot wallet, you personally control your own private keys that give you exclusive access over your crypto holdings.

Pro's and Con's of a Warm Wallet

Here are the Pro’s & Con’s of choosing a warm wallet:

Pro’s of a Warm Wallet

Con’s of a Warm Wallet

Stronger security → Less exposure to constant online risks than hot wallets.

Still Compromisable → Not fully offline, so advanced attacks remain possible.

Moderate convenience → Faster access than cold wallets when funds need to move.

More complex to use over hot wallets.

Scalable protection → Requires 2FA &/or Multi-sig authorisation for transactions.

Slower transactions than hot wallets due to extra security layers.

Better suited for medium-term holding (weeks to months).

Zero Security support → Self reliant on security & safety of assets.

Benefits & Use Cases of a Warm Wallet

Warm wallets shine in situations where speed & accessibility are equally as desired as self-custody & security. For investors who seek the ability to hold securely for the long-term, or actively trade the markets at will, these are the highlight benefits that a warm wallet provide:

⚡ Convenience: Easier access than cold wallets for regular transactions.
🛡️ Enhanced Security: More protected than hot wallets, often using hardware or multi-sig features.
🔄 Flexible Use: Can interact with exchanges or DeFi while keeping larger balances relatively safe.
🗝️ Key Ownership: You retain control of your private keys, unlike hot wallets.
💳 Regular Payments: Manage recurring crypto transactions or medium-term holdings with better security than a hot wallet.
🤝 Integration: Can connect safely to multiple platforms, apps, or dApps with reduced risk.

Risks & Vulnerabilities of a Warm Wallet

Whilst warm wallets provide greater security measures than hot wallets, they can also hold more risk if the individual investor lacks the knowledge to correctly use the wallet.

🎭 Targeted cyberattacks: Hackers often go after warm custody services and institutional platforms.
🚪 Insider risks: Because warm wallets are often multi-user, bad actors within a company can exploit access.
🧬 Not Disconnecting: Forgetting to disconnect your warm wallet from 3rd party websites (DeFi Applications) can keep your funds open to be exploited.
🤓 Overconfidence: Some users treat warm wallets as “just as safe as cold,” which they are not.
🙈 Human error: Sending funds to the wrong chain or address increases risk.

Is a Warm Wallet Right for You?

Whilst a warm wallet seems from the outside to offer the best of both worlds, there are a few trade-offs that should be considered. Here are the For & Against of selecting a warm wallet:

👤 Who Should Use a Warm Wallet?

🚫 Who Shouldn’t Use a Warm Wallet?

Active Traders & mid-term investors → Those who move funds every few days/weeks.

Complete beginners → Increased complexity can lead to overlooked mistakes.

Institutions & funds → Warm custody offers controlled access and audit trails.

Investors looking to store large, long-term holdings.

Security-conscious individuals → Users who want extra protection without the hassle of plugging in a hardware wallet daily.

Investors who share devices with multiple users.

Best Practices for Warm Wallet Safety

Here are our best practise tips for those of you that decide that a warm wallet is right for you:

1️⃣ Use Two Factor Authentication &/or multi-signature setups if available.
2️⃣ Add withdrawal delays/alerts to catch suspicious activity.
3️⃣ Keep only medium amounts in your warm wallet (not huge life savings).
4️⃣ Ensure offline backups (Paper copy) of private keys/seed phrases in case the warm wallet software fails.
5️⃣ Treat warm wallets as bridges between hot and cold storage, not a permanent home.

Cold Wallet

Quick Recap:

Cold wallets (also known as a hardware storage device) are the gold standard for securing large sums of crypto, both for long-term holders (HODLers) and institutions managing internal funds. Designed as a 2FA device that functions completely offline, cold wallets are considered by far the safest form of crypto storage method, removing the risk exposure when it comes to hacks, phishing attacks, malware, and other online threats.

Pro's and Con's of a Cold Wallet

Here are the Pro’s & Con’s of choosing a cold wallet:

Pro’s of a Cold Wallet

Con’s of a Cold Wallet

Highest security level → Virtually immune to online attacks.

Less convenient → Sending funds requires connecting the device or transferring offline-signed transactions.

Ideal for long-term storage → Perfect for funds that don’t require frequent movement.

Physical risks → Loss, theft, fire, or damage can destroy the wallet.

Ownership Sovereignty → You alone control the keys; no third party can freeze or seize your assets.

Much Slower to Access → Completing any form of transfer takes on average 5 minutes to complete.

Initial Cost → Hardware wallets cost money (typically $50–$250 per device).

Benefits & Use Cases of a Cold Wallet

Cold wallets are setting the standard for long-term digital wealth storage. Closely comparable to a traditional banking system, cold wallets act as a vault for your funds that remain locked away from the cyber world. Only in this case, that bank is located right in the palm of your hand. For most people, the idea that you could access any amount of your funds without having to go through the hassle of explaining yourself to the teller is enough of a reason to choose a cold wallet. Here are just a few of the core benefits that a cold wallet provide:

🛡️ Long-term investors storing life savings in BTC, ETH, or other major assets.
🏨 Institutional holdings requiring maximum security (custody firms often split keys across locations).
🕴 High-net-worth individuals protecting crypto from theft or hacks.
🔒 Offline backup for hot or warm wallets: Moving funds in and out of cold storage for extra protection.
💳 Sole custody of assets at the highest level of security available (on par with banks)
🤝 Wealth Succession Planning: Properly stored seed phrase, private keys, & hardware wallet creates a clear inheritance plan for family without relying on centralised exchanges.

Risks & Vulnerabilities of a Cold Wallet

Whilst from a security of usability perspective cold wallets could be deemed seamless, there are a few tangible risks & vulnerabilities that could arise if not responsibly used:

📝 Seed phrase loss/misplacement: Without it, your funds are lost forever.
🔥 Physical theft or destruction: Hardware wallets or paper backups can be stolen or damaged.
🧩 Improper setup: Using an unverified device or compromised firmware can introduce vulnerabilities.
🙈 Human error: Mismanaging multiple wallets, copying keys incorrectly, or sending funds to the wrong chain or address increases risk.
💻 Excessive 3rd party DeFi connections: Ignoring the nature of a cold wallet by treating it as if it was a warm wallet.

Is a Cold Wallet Right for You?

Whilst a cold wallet for most investors is typically the right move, there are some caviars that may persuade alternative wallet choices. Here are the For & Against of selecting a cold wallet:

👤 Who Should Use a Cold Wallet?

🚫 Who Shouldn’t Use a Cold Wallet?

Long-term holders / HODLers.

Active day traders needing instant access.

Crypto investors with significant wealth ($25,000+).

Newer investors seeking a simplistic approach to crypto.

Institutions managing internal funds.

Very small, short-term holdings (Less than $10,000).

Investors seeking self-custodial & high level security systems.

Investors who aren’t able to safely store their hardware wallet.

Best Practices for Cold Wallet Safety

Here are our best practise tips for those of you that decide that a cold wallet is right for you:

1️⃣ Always backup your seed phrase offline, preferably in multiple secure locations. Write it down on paper and store it somewhere safe.
2️⃣ Keep your hardware wallet in a safe location at all times.
3️⃣ Test your recovery process before storing significant funds.
4️⃣ Keep firmware updated safely and always download from official sources.
5️⃣ Never connect cold wallets to DeFi applications. Consider pairing a warm wallet to your transaction/transfer process.
6️⃣ Consider multi-signature setups for added redundancy (Optional Added Protection)

Now that we’ve covered all three cryptocurrency wallets in detail, it’s time to cover one last factor that may help determine which type of Cryptocurrency wallet you decide to go with.

Custodial vs. Self-Custodial Cryptocurrency Wallets

Cryptocurrency is all about bringing self-custody & decentralisation to our financial system, yet depending on where you store your funds can limit truly how decentralised they are. To make things easier, we’ve gone ahead and broken down both

🏦 Custodial = Convenience but trust someone else.
🔒 Self-custody = Freedom & security but greater personal responsibility.

Custodial (Not Self-Custody): When you keep your crypto on a centralised exchange (Binance, Coinbase, Kraken), you’re not holding the keys. The exchange is. Your balance is essentially an IOU from them.

✅ Benefits: Easy to access, user-friendly, dedicated support team & recovery options.
❌ Risks: Exchange hacks, insolvency (FTX collapse), frozen withdrawals, government seizures.

Self-Custodial (True Ownership): When you use a non-custodial wallet (hardware wallet, MetaMask, Trust Wallet), you control the private keys.

✅ Benefits: Total sovereignty over your funds. Zero reliance on anyone but yourself.
❌ Risks: 100% of security responsibility is on you. If you lose your keys, nobody can help you.

As a general recommendation, we tell our clients that Self-custodial is the way to go for all amounts above $10,000. Anything below that can still be self-custodian, especially if investing for the long-term, but exchange held custodial wallets may offer a smoother investment experience.

It’s Time to Choose which Cryptocurrency wallet is right for you.

Now that you have all the information you need to make an informed decision on which Cryptocurrency wallet best suits your investing goals, it’s time to make a decision.

Now that you have decided which Crypto wallet suits your investing goals, our next lesson is about learning how to safely & securely use your Crypto wallet.