Cold Wallet vs. Hot Wallet: Where Is Crypto Stored?

where is crypto actually stored hot

wallets cold wallets exchanges what's

the difference in this video I'm going

to make it very easy for you to

understand so crypto is always stored on

the blockchain it's not stored on some

computer it's not stored in the cloud

it's not even stored on a hardware

wallet it's always on the blockchain

what is stored on those devices is the

keys that control the crypto and if you

have your crypto on an exchange they

have the key to control the crypto and

if you have your crypto on a

self-custody wallet well you have the

keys to control the crypto and I like to

compare it to a mailbox actually a

see-through mailbox that everyone can

see what's going on just like we can see

on a transparent public blockchain but

just because we could all see what's

inside of the mailbox doesn't mean we

actually have access to it if you have

your crypto on an exchange really you

have the keys on the exchange they have

access to it and if you have crypto or

really the keys on your own self-custody

wallet you have access to the crypto so

really we're just moving around keys for

example even if you have a hardware

wallet that you generated a seed phrase

with and then that Hardware while it

breaks and then you take that seed

phrase and restore it on a hot wallet

you'd think you transferred crypto from

a cold wallet to a hot wallet but really

nothing changed the crypto is in the

same spot on the blockchain what really

happened is you transferred the keys

from a more secure device to a less

secure device so why is there risk

keeping your crypto or really your keys

on an exchange well when we use and

exchange the mailbox is no longer

transparent we actually can see what's

inside we have to trust the exchange

when they tell us that the crypto is

actually there but let's say we could

see what's inside of the mailbox or we

could see that our funds were actually

there well if we went to access them we

can on our own we have to ask permission

from The Exchange because we remember

they are the ones that hold the key to

the mailbox they are the ones that hold

the key to the crypto so when we hold

our crypto on a self-custody wallet

whether it's a hot wallet or a cold

wallet we know the funds are there it is

a see-through mailbox again and if we

want to access those funds we can do so

at any time so what's the difference

between a hot wallet and a cold wallet

the main difference is the way we secure

those keys with a hot wallet you've

probably heard that it is less secure

the reason is because when we generate

keys for a hot wallet it is displayed on

a device connected to the internet so if

your computer is compromised the hacker

will already have access to your seed

phrase but for the most part that's not

the case usually when we create hot

wallets or devices whether it's a

computer or the phone it's usually fine

but then moving forward the seed phrase

for our hot wallets is actually stored

in the wallets browser so if in the

future your computer becomes compromised

or you download malware on your phone or

computer a remote hacker may have access

to your crypto and also if someone is

able to gain remote access to your

computer or your computer is compromised

transactions can be made on your phone

or your computer and the transaction

will be signed on the app basically with

a hot wallet your seed phrase is exposed

to the internet and hot wallets are good

I'm not hating on them I use them myself

and actually a lot of people in the

space use hot wallets they are seamless

they are very convenient but usually

when people use hot wallets it is

recommended to not keep all of their

funds on a hot wallet as you can see it

is exposed to the internet making your

crypto vulnerable or actually to be

correct making the keys to your crypto

more vulnerable now when it comes to a

cold wallet why is it more secure well

with a cold while we generate the seed

phrase offline on a device that is not

directly connected to the internet right

off the bat this makes our seed phrase

more secure and then moving forward the

seed phrase is not stored on the

wallet's browser the seed phrase is

offline so even if a hacker gains remote

access to our phone or our computer they

won't be able to access our seed phrase

and if our device is fully compromised

and a hacker gets right into our

computer and starts making transactions

well they won't be able to because the

final transaction must be signed on the

physical device so if you have a remote

hacker gain access to your hot wallet

they can potentially make transactions

just through the internet but if they

gain access to your computer but your

funds are in a hardware wallet they

would need the physical device itself to

sign a transaction this is why Hardware

wallets are more secure than hot wallets

and when using using Hardware wallets

you may notice you connect them to apps

such as metamask when doing so this does

not make your Hardware wallet become a

hot wallet the seed phrase is still

secure on the hardware wallet we are

only using an app such as metamask as an

interface so let's say we connect our

ledger to metamask and our computer

becomes compromised there is no seed

phrase for a ledger that is stored on

that metamask also if someone gains

Direct Control of our computer and

starts making transactions on the

interface for metamask well they'll have

to sign the final transaction on the

hardware wall itself which they don't

have so whenever you see a hardware

wallet being used with a hot wallet

really the hot wallet is just being used

as an interface crypto is always stored

on the blockchain the only difference is

where we store the keys and as we know

Hardware wallets are the most secure way

to do so and my favorite Hardware wallet

is ledger now I know there's a ledger

Nano S Plus and The Ledger Nano X and I

made a comparison video right here to

help you choose which one is right for

you

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