What Is A Hot Wallet?
A hot wallet is a digital storage connected to the internet, and it allows cryptocurrency owners to send and receive tokens.
A hot wallet is a virtual currency wallet that facilitates cryptocurrency transactions. A cryptocurrency is a virtual money that you may use to pay for goods and services. However, it does not rely on traditional financial systems; and instead, it uses an online ledger known as blockchain with strong cryptography to secure transactions. Unlike traditional fiat, cryptocurrency does not have a physical form, and as a result, it can only be stored in digital storage. Hot wallets are digital storage platforms accessible online and allow owners to store, send, and receive different cryptocurrencies such as Bitcoin and Ethereum.
There are two kinds of cryptocurrency wallets – Hot wallet and Cold wallet. Both wallets allow crypto users to store their tokens. However, what differentiates them is that hot wallets offer online storage, while cold wallets offer offline storage. Of the two, the hot wallet is the most popular, and that is because it allows crypto holders to conveniently complete financial transactions on a blockchain. Usually, hot wallets come with various security features, making them excellent for storing digital currencies. But, because they live on the internet, they are susceptible to attacks from hackers.
At its core, a hot wallet is a program that uses a blockchain users’ public and private cryptographic key to complete transactions. The public key plays the same role an account number plays in the traditional banking system, and it is the address users share with someone who wants to send a token to them. A private cryptographic key acts like a PIN. When a sender sends tokens to the receiver’s public key, they sign the transaction with their private key, which authorizes it. Public and private keys are the most important elements of a cryptocurrency wallet; a wallet is useless without them.
Hot Wallet Example
Hot wallets are essentially crypto wallets that you need an internet connection to access. An example is Trust Wallet which allows users to store different crypto assets.
Hot wallets may be grouped into three:
- Web Wallets: These wallets require you to open a URL to access them. An example is MetaMask.
- Mobile Wallets: These wallets are accessible as mobile applications on smartphones. An example is Trust Wallet.
- Desktop Wallets: These wallets run on desktop computers and laptops. An example is Exodus.