A hot wallet is one that is permanently online and, therefore, is susceptible to computer attacks, even if the speed of its transactions is greater.
It would be a concept similar to that of working in the cloud, but related to cryptocurrency wallets. When we have an online portfolio, we can open a browser and access it immediately, without having to connect each time. The same thing happens with the mobile application.
Therefore, the difference between these and cold wallets is that the latter must be opened and closed every time we want to enter them. However, they remain offline, and thus cannot be attacked remotely.
Operation of a hot wallet
The hot wallet works as follows:
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- They are permanently connected to the blockchain and the Internet.
- Its operation is similar to that of any application in the cloud or for mobile phones.
- They are managed from the mobile, with an app or from the PC, both in the cloud and with a download software that can be synchronized.
- Once we open the account, we can download the app or the program for the computer.
Advantages and disadvantages
Let’s see what its most relevant advantages and disadvantages are:
- An advantage is that, since it allows to have small amounts of cryptocurrencies, they are fast to carry out basic transactions.
- Another advantage is that they are usually free cryptocurrency wallets.
- An added advantage is that its security systems consist of public or private access keys similar to those of an email or bank account.
- One drawback is that they do not store large amounts of virtual currencies like traditional wallets.
- We cannot forget the biggest drawback and that is that they are susceptible to computer attacks by hackers.
hot wallet types
We can establish three basic types of hot wallet:
- HotWallet online. They work directly online and there is no need to download apps or software. It allows you to connect from anywhere in the world and on any device.
- Hot Wallet for desktop. We are facing an option related to the previous one, since this type of program is downloaded by synchronizing it with the online wallet.
- Hot Wallet for mobile. It would be the wallet app. Its drawback is that it has a more limited capacity than the computer application, but it can be used from anywhere with the Smartphone.
Hot wallet example
Let’s see some examples of this type of online wallets:
- BitcoinCore. A Bitcoin-only desktop wallet compatible with Windows, Mac, or Linux.
- Bitgo is an online Bitcoin wallet. It supports more than 100 cryptocurrencies and tokens, in addition, it operates under a multisignature technology.
- Electrum for mobile. In this case, this hot wallet also has a desktop application. It is compatible with Android and has various security measures.