Hot Wallet

An online wallet for storying cryptocurrencies. Considered less secure than cold wallets.

If you’ve been a Bitcoiner for even a short amount of time, chances are you’ve used a hot wallet.

A hot wallet is any wallet that stores, receives and sends coins and tokens and is at the same time connected to the internet. Traditional currencies may require you to have banks or physical wallets, but cryptocurrency wallets only require a connection to the internet (when sending and receiving) and thus they come in many different forms and varieties.

The reason a hot wallet differs from a cold wallet is that hot wallets are connected to the internet, while cold wallets are not.

As a Bitcoiner you should understand the reasons why you might want your cryptocurrencies to be either connected to or disconnected from the Internet. There are benefits and drawbacks to both, that’s why many cryptocurrency holders have multiple cryptocurrency wallets that are both hot and cold. 

The biggest advantage of holding cryptocurrency in a hot wallet is that you can use your crypto to make purchases, send and receive payments, and transact normally. 

The flip side is that hot wallets are more likely than cold wallets to face security issues and even be hacked into and drained. That’s not to say that a hot wallet is unsafe, it’s just a little bit more vulnerable simply because a cold wallet is entirely removed from the Internet. Think of it like this: a hot wallet is like a Paypal account that, if the password is leaked, can get hacked and drained -- while a cold wallet is like having a gold brick in a vault at home. 

The way both hot and cold wallets work is by storing the cryptocurrency public keys and private keys -- which are the most important elements of a cryptocurrency wallet. 

On a hot wallet, these items and any funds are vulnerable to attack because the public and private keys are stored on a device that is internet accessible.

To make sure your funds aren’t stolen, only keep a small portion of your holdings in a hot wallet and keep the rest in a cold wallet. If you plan to spend, then only keep the amount you plan to spend in the near future on your hot wallet. 

If you’re wondering what these look like, then just remember hot wallets connect to the internet. So a hot wallet can be a USB stick, exchange, wallet on your phone, etc. While a cold wallet can simply be a piece of paper with your public and private key on it.