Hot Wallet
Hot wallets are connected to the internet, meaning that funds stored in hot wallets are more accessible. However, because of this connection, they are also susceptible to malicious attacks. Examples of hot wallets include web-based wallets, mobile wallets, and desktop wallets.
Hot wallets work as a storage device for cryptocurrency that can interact with various decentralised apps (dapps) on the internet. This is in contrast to cold wallets, known for storing cryptocurrencies offline. In hot wallets, private keys are stored and encrypted in the app itself, which is kept online.
Since they are connected to the internet, hot wallets are vulnerable to hackers or malware programmes like any other internet-connected device. Keeping large amounts of cryptocurrency in a hot wallet is a fundamentally poor security practise; risks can be mitigated by using a hot wallet with stronger encryption, or by using devices that store private keys in a secure enclave.
Key Takeaway
A hot wallet is a tool that allows for storing cryptocurrency with a connection to the internet.