What is a Hot Wallet?

what-is-a-hot-wallet-in-crypto

TL;DR

  • Wallets help to organise and hold users’ digital asset portfolios in one location on the blockchain
  • Hot wallets are domiciled online and are always on the internet, making them easily accessible and convenient for users at all times
  • Hot wallets are more susceptible to hacks and are the easiest to hack among blockchain wallets

Wallets in Blockchain Technology

Wallets are essential for storing and holding digital assets on the blockchain. All transactions authorised on a blockchain are either sent or received through a wallet address. In essence, a wallet serves as a repository for holding and transacting digital assets on a blockchain. These assets can vary from altcoins and stablecoins to non-fungible tokens and asset-backed securities.

Blockchain Hot Wallets

Hot wallets are just one of the varieties of wallets that users can deploy for storing their digital assets. Hot wallets are domiciled on the blockchain and are ever connected to the internet. This “always online” capability makes them appealing, convenient, and easy to use for all.

Susceptible to Hacks

As convenient as hot wallets could be, they still have their downside. They are the most prone to hacks and cyber attacks among the types of crypto wallets. Since hot wallets are always online, they become easy targets for hackers seeking to steal funds. Hot wallets are the usual victims in instances of exchange hacks. You can read about some of the biggest hot wallet hacks ever recorded in this link.

It’s a Trade-Off

Users generally have to make a trade-off between convenience and security when determining which type of wallet is most suitable for them. A hot wallet makes it easy to conduct transactions on the blockchain but it is prone to attack. On the other hand, cold wallets offer greater security as assets are stored offline, but they are not convenient to use.

Conclusion

Hot wallets are the most popular type of wallet used on the blockchain. It has got its benefits and disadvantages at the same time. It is up to you to decide if a hot wallet really serves your purpose more than any other wallet options around.

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