A cryptocurrency wallet that is connected to the internet for hot storage of cryptoassets.
A hot wallet is a cryptocurrency wallet connected to the internet for the storage of cryptoassets. The ability to store, secure and transact crypto assets makes hot wallets a convenient and accessible choice to interact with the digital asset economy.
Thus, the hot wallet is the interface you use to access and store your cryptocurrency. For the blockchains, a hot wallet transmits transactions that are recorded to the ledger.
The pros of hot wallets include their convenience. For instance, because hot wallets are connected to the internet, there is no transition between using the wallet online or offline. Thus, it is faster and easier to use a hot wallet for simple transactions. Cold wallets, on the other hand, need to be connected and take significantly longer time.
Generally, hot wallets are just as safe as any other type of wallet. They are considered higher risk because users sign more transactions with different smart contracts, increasing the chance of becoming a victim of an attack that steals private data. As a rule of thumb, users expose themselves to many more potential attacks simply because they use hot wallets a lot more often than other types.
A key rule is to limit the amount of funds stored in a hot wallet. For instance, you should never store more in a hot wallet than you are willing to lose in a hack. Furthermore, safely storing your private key and keeping your browser updated are also considered mandatory security practices.
Hot wallets themselves can be hacked, however, the biggest risk factor is the user. Attackers generally try to trick users into involuntarily revealing their data via a phishing attack or fraudulent smart contracts that users interact with. Therefore, you should always pay attention to the transactions you are signing and make sure to keep your personal security level high when using your hot wallet.
Hot wallets and exchanges both come with their own types of security risks. Both can be at risk of phishing or hacker attacks, although exchanges are probably more exposed because they control more user assets. On the other hand, exchanges are more convenient for users since you do not have to store your private key. Ultimately, it is a matter of preference, and most users have both exchange accounts for trading and hot wallets for storing and transferring cryptocurrencies.
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