Custody, in one page
Hot, warm and cold — what each costs you in convenience and in risk.
At a glance
- Hot wallets are always online and settle instantly; size them as float, not savings.
- Cold storage defeats remote attackers entirely but shifts the risk to losing the device or the backup.
- Warm storage — multisig or MPC — removes any single point of failure without going fully offline.
Custody is a single question asked repeatedly: who can move the coins, and what has to happen first. Everything else is implementation detail.
A hot wallet keeps signing keys on a machine connected to the internet. It settles instantly, which is why every exchange runs one, and it is permanently reachable by anyone who compromises that machine. Hot balances should be sized as float, not savings.
Cold storage keeps keys on hardware that has never touched a network. Moving funds requires physical access and a deliberate ceremony. It defeats remote attackers completely and replaces that risk with a custodial one: losing the device, the backup, or the person who knew the procedure.
Warm storage sits between them — keys online but behind a quorum, so no single compromised signer can move anything. Multi-signature and MPC both land here, and this is where most institutional balances actually sit.
The practical rule is boring. Decide what fraction of a balance you would accept losing to a remote attacker on your worst day; that fraction is your hot wallet ceiling. Everything above it belongs behind a quorum or offline.
Key terms
- Hot wallet
- A wallet whose keys are held on an internet-connected device, for speed at the cost of exposure.
- Cold storage
- Keys held on hardware that has never connected to a network, requiring physical access to spend.
- Quorum
- The number of independent signers required before a transaction from a shared wallet is valid.
Frequently asked
Is it safe to keep any funds on an exchange?
For funds you intend to trade actively in the near term, yes, within reason — the risk is concentration, not the mere act of using an exchange's hot wallet.
What's the single biggest custody mistake people make?
Keeping a large, long-term holding in a hot wallet purely out of convenience, with no plan for what happens if that device is compromised.
Do I need cold storage if I only hold a small amount?
It depends what “small” means to you — the right question is what fraction of that amount you'd accept losing to a remote attacker, not the absolute size.