A hot wallet is on an internet connected device, which makes it convenient and exposed. A cold wallet keeps keys on a device that never goes online, which makes it far safer and slower to use. The standard setup is both: a hot wallet with a small working balance, and cold storage for everything else.
The actual difference
It is not about which app you use. It is about whether the private key has ever touched a machine that is connected to the internet.
Hot wallet
Browser extension or phone app
- Instant access, works with every onchain app
- Free, and takes two minutes to set up
- Fine for a working balance you actively use
- Malware on the device can potentially reach the key
- A malicious approval can drain it in one signature
Cold wallet
Hardware device or offline backup
- The key never touches an internet connected machine
- You physically confirm each transaction on the device screen
- A fully compromised computer still cannot extract the key
- Costs money, typically fifty to two hundred dollars
- Slower for frequent use, and you have to have it with you
How to split between them
| Amount | Sensible setup |
|---|---|
| Under a few hundred dollars | A hot wallet is fine. Focus on backing up the recovery phrase properly |
| A few hundred to a few thousand | Hot wallet for use, and start treating the backup seriously. Consider hardware |
| Above a few thousand | Hardware wallet for the majority, hot wallet with a small float for daily activity |
| Substantial holdings | Hardware wallet, plus a multisig or a distributed backup, plus a recovery plan |
The pattern most experienced people use
A hardware wallet as the vault
Holds the majority. Rarely connected, and used only for large moves.
A hot wallet as the daily driver
Holds a small float for swaps and apps. If it were drained tomorrow, it would be annoying rather than devastating.
A separate burner for risky things
Minting from unknown contracts, testing new protocols, claiming airdrops. Nothing valuable ever sits in it.
Approvals reviewed periodically
Every few months, revoke old permissions across all of them.
Common questions
Is a hardware wallet worth it for a small amount?
Below a few hundred dollars, probably not. Above a few thousand, almost certainly. The device cost is fixed and the protection scales with what you hold.
Can a hardware wallet be hacked?
Extracting a key from a modern device requires physical access and considerable sophistication. The realistic attacks are supply chain, so buy direct from the manufacturer, and social engineering, so never enter your recovery phrase anywhere except the device itself.
What if the hardware wallet company disappears?
Your recovery phrase follows the BIP-39 standard, so it restores in any compatible wallet from any manufacturer. You are not locked in.
Where to go next
Not sure where your holdings should sit?
We look at what you hold, where it is, and what a sensible split looks like for your situation. No product pitch, just the setup that fits.