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What is a hot wallet?

Wallets are an essential component of the cryptocurrency industry because they provide a reliable and intelligible way to manage funds and transfer them from one user to another, spreading to various currencies, such as bitcoin and others. A cryptocurrency wallet is classified as either a cold wallet or a hot wallet. The difference to be drawn is that a hot wallet is only operable when you are online, and a cold wallet is functional outside the internet connection. The term "hot wallet" can refer to a variety of devices, including "hot storage device" and "software wallet". They are generally easy to set up and use, providing an almost instantaneous way of buying and administering cryptocurrency.

Users can store their currency in multiple digital wallets. This can be explained in terms of universal security concerns. Hot wallet configuration itself protects and secures transactions between its users. In the following, we give a more detailed answer to the question: what is a hot wallet?
Hot wallet styles
It comes in multiple iterations:
  • A desktop hot wallet is the one installed on your computer or laptop
  • A mobile hot wallet is a smartphone-installed one
  • A browser wallet is a hot wallet that does not need to be integrated with your device and can be reached easily from your web browser

How does it work?

Essentially, hot and cold wallets are considered necessary for the same intention. What they do is allow consumers to manage and store cryptocurrencies for others when online. Given that a hot wallet has to be connected to the Web, opening it, entering the sender's public address, and processing the transaction usually takes a bit of time. Likewise, it takes very little time to view basic information about all the funds stored. If you receive cryptocurrency, you can even predict how much and when is about to come in via Block Explorer.

Security talk: hot wallet vs cold wallet

The dissimilarity between cold and hot wallets lies in their security. Traditionally, cold wallets win in this competition. Since hot wallets are constantly connected to the internet, they can get vulnerable to cyber-attacks sometimes. Cold wallets, coming as separate physical devices, on the other hand, are connected for only a few seconds, making remote hacking virtually impossible. Some of the best hardware wallets include numerous security features that further enhance the security and safety of funds. These include parameters to detect potential hacking and several levels of password and pin protection.

Need a trustworthy cold wallet? Try exporing hardware wallet brands like Ledger, Trezor, Ellipal, SecuX.

Hot wallet providers are striving to improve security. Leading providers have implemented two- or multifactor authentication security systems that are commonly used in banks and other financial institutions and multisig systrems. Multi-signature (multisig) sets out the legal requirements of multiple keys to mandate a Crypto transaction compared to a single signature from the single key. It can be used in a variety of ways, for example, distributing accountability for cryptocurrency custody between multiple individuals. Financial assets in CoinsPaid wallet are kept in an offline cold wallet that is safe from cyber threats.

To name a few other credible hot wallets, feel free to try lExodus, MetaMask, Electrum, Coinbase Wallet, Edge.
Positives and negatives of hot wallets
Both types of wallets have specific pros and cons, as well as different uses. By understanding these differences, you'll be able to make a more informed decision about which type is best for you. But if you use cryptocurrency for different tasks, it may well be that the hot and cold wallet argument is irrelevant, and you'll need both types.
  • 1
    The important irrefutable feature of hot wallets is their ease of configuration and use. In contrast to cold wallets that are operable in the offline space, hot wallets are available exclusively for online use. So most people, for comparison purposes, use mobile hot wallets to trade or buy cryptos. It would be bothersome to do this with a cold wallet. You'd need to locate equipment (generally a laptop), something that you can connect to the cold wallet to make transfers. In case that is a single payment, you may send the crypto directly where needed; if not - it would take sending the amount of digital money to the hot wallet first to complete the payment.
  • 2
    Users with substantial cryptos do not store vast quantities of cryptocurrency in hot wallets. Although a hot mobile wallet isn't just about a traditional analog wallet, there's one thing in common: carrying a large sum of assets is usually a last resort. When your cryptocurrency balance falls below a certain threshold, try to top up with a relatively moderate amount.
  • 3
    Often, credible exchanges keep most of their clients' funds offline in a network of cold wallets but then keep a portion of the funds required for withdrawals in hot ones. If you're storing large amounts of crypto assets online, take a glance at the notoriety of the exchange you have to use. Explore opportunities presented by top-tier exchanges such as Coinbase, Binance, Gemini, Kraken etc.
Tips for using the hot wallet
  • Keep your personal password off your computer and the internet.
  • Everyone who knows your recovery phrase has access to your funds.
  • Keep your anti-virus software 'up to date,' because cybercriminals don't sleep and are constantly devising new ways to gain access to your computer.
  • Don't use untrusted computers to access your wallet.
  • When you return your PC or mobile phone, log out of all your accounts.
  • Don't share your crypto wallet address on social media.
  • Get a separate email for all of your cryptocurrency operations (for instance, Protonmail), where you will receive transaction confirmations, password recovery, and other information. This address should only be known to you.
  • Enable the Two-factor authentication for receiving passwords via email.


It's always up to you to decide between hot vs cold wallet. We've looked at some examples and debunked some myths that indicate that subjective decisions must be taken depending on the individual needs of the wallet user. If you have just started your journey in the world of cryptocurrency, it is better to start by using a hot wallet. You can open your account and get your private keys in a couple of seconds. Of course, a cold wallet is a more secure way of managing your digital assets. But to avoid incidents within the hot wallet, you should only keep the funds you will need for future withdrawals.

April 16, 2020
Data and information on this website are provided for informational purposes only, and are not intended for reference or other purposes. All financial, statistical and other relevant data regarding the clients/merchants, conducted transactions, etc., has been provided as aggregate from activities of all legal entities operating under the brand name of Coinspaid and Cryptoprocessing, including, but not limited to: (I) Dream Finance OÜ, Kai 4, 10111, Tallinn, Estonia; (II) Dream Finance UAB, Gynejq St. 14-65, Vilnius, Lithuania and (III) Dream Finance S.A. DE C.V., 3A Calle Poniente Y, 71 Avenida Norte, Colonia Escalón, office No 3698, San Salvador, El Salvador.
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