Now that we know the risks and benefits of each type of wallet, the million Bitcoin question is:

Which one should I use?

The answer: more than one!

A secure setup consists of a hot, convenient wallet AND a cold, secure wallet.

Right now, you can do two things with your crypto: HODL (hold on for dear life), or trade it, and you should use a separate wallet for each.

You use a cold, secure wallet to HODL

If you are HODL'ing, you have no intentions of trading your assets in the foreseeable future, so convenience is irrelevant.

Your private keys are more vulnerable on a hot wallet, so you only take more risk by holding long term value in a less secure wallet.

The HODL'ing assets should live in a cold, hardware wallet, where the private key is inaccessible unless you connect the device to a computer.

This is where the bulk of your value should be stored.

You use a hot, convenient wallet to interact with the blockchain on a daily basis

If you want to use a DeFi protocol like Uniswap, or buy an NFT, this is where the hot wallet comes in (like MetaMask). You can use these to have a seamless experience on the decentralized internet.

You should think of your hot wallet as a debit card - only load the cash you need on it. The rest of the crypto you own should stay in cold storage if you don't plan to use it.

How this looks in practice

Say you own a few NFTs, and you decide to sell one.

Rather than connecting your hardware wallet to an external party's NFT protocol, and potentially exposing all of your assets, you first move the NFT from your cold storage to your software wallet.

Then when you conduct the trade, the rest of your assets are safe, and even the public address of your cold wallet is never revealed to the buyer.

Takeaway

You need a combination of wallets. Cold storage is essential, but to truly protect yourself, a hot wallet is just as important.