Crypto wallets play a crucial role in facilitating mass adoption of cryptocurrencies by providing a gateway to storing, managing, and transferring digital assets conveniently through the use of private keys.

Crypto wallets are characterized by three main types: cold, warm, and hot. While the line between what makes a wallet warm or hot may sometimes be blurred, each wallet type varies based on their security and accessibility features, all of which caters to diverse user needs and risk appetite. In this article, we explore what each of those crypto wallets offers and how institutions should approach them to fit their own business objectives.

What are cold wallets?

Cold crypto wallets, also known as cold storage, hardware wallets or offline wallets, are specifically built to store private keys offline. They may exist in the form of hardware devices or on paper (referred to as paper wallets). The fact that they are completely disconnected from the internet by nature provides the highest level of security against malicious hacking. 

Cold wallets are the foundation of most institutional custodians who offer cold storage solutions for institutional clients to store and manage their digital assets.  Such solutions are generally preferred among institutions with a long-term holding strategy to secure parts or the entirety of their treasury or, if such a solution is offered by the custodian, to trade on a partner exchange while the client’s assets remain in cold storage, known as off-exchange settlement (while Ceffu offers this solution with cold storage, other custodians may use a warm or hot wallet to enable off-exchange settlement). 

While cold wallets are the most secure, they require human intervention to approve transactions in order to broadcast them on the blockchain, thereby reducing transaction speed based on the authorized personnel’s availability and readiness. Moreover, their offline nature may present risks of physical loss or damage, particularly for institutions opting for a self-custodial solution as opposed to outsourcing the security of their private keys with a third-party custodian. The responsibility of exercising the utmost caution not to misplace their devices may not be suitable for institutions looking to leave large sums of their digital assets sitting idle in cold storage. 

What are warm wallets?

Warm crypto wallets offer a combination of security and accessibility features from cold and hot wallets. Warm wallets are partially connected to the internet through downloadable software applications or devices used to store a user’s private keys, such as laptops or smartphones. This means that although they are not always online, they can be more easily connected to the internet, thereby providing more convenience and faster access to a client’s funds. In order to sign and send transactions to the blockchain, however, warm wallets also require manual authorization, much like a cold wallet. 

With this in mind, warm wallets strike a balance between security measures and transaction speed. However, despite having better access controls than hot wallets, their reliance on software applications stored on devices which, themselves, are connected to the internet means they are still susceptible to potential cyber threats. 

What are hot wallets, and how do they differ from warm wallets?

Hot wallets are fully connected to the internet. Unlike warm wallets, which may be in the form of software applications or devices, hot wallets typically include an auto-sign component wherein users have given their consent for the entity providing the wallet service to automatically sign transactions without requiring manual authorization. Their setup  provides immediate access to user funds, though comes with widely-reported risks of security breaches, as they are typically the most vulnerable and easily accessible types of wallets targeted by hackers.

Their accessibility and scalability make them the most suitable options for institutional investors with frequent trading needs, though should be used for smaller amounts of digital assets given their higher risk profile. It is common for institutions to keep a majority of their holdings in cold storage and frequently move assets between their cold and hot wallets based on their needs. 

Therefore, institutional investors must carefully consider the trade-off between convenience and security when using hot wallets.

Overview of considerations for each wallet type

Which crypto wallets does Ceffu offer?

Ceffu provides a comprehensive suite of cold, warm, and hot wallets to meet the needs of its wide range of institutional clients, and has built innovative products on top of each wallet type to unlock the full potential of our clients’ digital assets. 

Qualified Wallet: Enterprise-grade cold storage

Qualified Wallet offers insured, enterprise-grade cold storage for institutions to store their digital assets with peace of mind, powered by multi-party computation technology to maximize the  security of our client’s private keys. Through Qualified Wallet, Ceffu’s  institutional clients also have access to:

• Mirror, the only off-exchange settlement solution integrated with the world’s largest cryptocurrency exchange, Binance

• Native staking, or the ability to delegate their digital assets to node validators of select supported protocols and earn rewards 

• Our escrow service, which runs entirely on our cold wallet solution to facilitate secure crypto transactions 

• OTC trades with Binance liquidity through our Cold Convert solution

Prime Wallet: Hybrid wallet with network-agnostic withdrawal solutions

Built as a hybrid wallet with components of both a hot wallet and cold storage, Prime Wallet offers institutional clients the convenience of faster transaction speed and connectivity to the Binance spot market orderbook through our OpenAPI function. This type of wallet is suitable for organizations in need of scalable solutions to manage their capital, which Prime Wallet supports by allowing clients to create thousands of sub-accounts. Clients can also use their Prime Wallet to unlock the liquidity of their staked ETH holdings through our partnership with Binance Earn.

Co-sign Wallet: Warm wallet with key share ownership

Our newest wallet solution, Co-sign Wallet, offers institutional clients secure access, fast transfers, and greater control by requiring 2 out of 3 key shares to approve transactions, one of which is stored on the client's personal device of choice.  This setup makes the process of co-signing transactions more suitable for institutions wanting more influence over their transactions while entrusting the security of their other private key shares with us.

Contact our team to discuss how our bespoke solutions can address your business needs by filling out our institutional form.