What is Hot Wallet?

In the cryptocurrency ecosystem, every crypto asset has a monetary value. You can buy, sell, and transfer crypto assets from one place to another. This is actually the main purpose of cryptocurrencies: to be able to transfer your assets more freely, quickly, and advantageously without relying on central authorities like banks and governments. Of course, you need certain applications to store, transfer, buy or sell these monetary values. In the cryptocurrency ecosystem, structures that allow you to store and transfer cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Dogecoin (Doge) to other accounts are called cryptocurrency wallets.

What are cryptocurrency wallets?

Cryptocurrency wallets are divided into two types: hot wallets and cold wallets. These wallet types are further divided into many subtypes such as network node wallets, storage wallets, paper wallets, network-specific wallets, desktop wallets, mobile wallets, and software wallets.

In this article, we will answer the following questions: What is a hot wallet? How do you get a hot wallet? What are the advantages of a hot wallet? Should I choose a hot wallet or a cold wallet?

What is a hot wallet?

A hot wallet, or online wallet as it's also known, refers to cryptocurrency wallets that are connected to the internet, as the name suggests. Hot wallets are used to transfer crypto assets, make trades, and store cryptocurrencies in an online environment.

Hot wallets use private keys that help facilitate transactions. Since these types of cryptocurrency wallets are connected to the internet with their online structure, they provide many conveniences. For example, hot wallets can be accessed instantly from anywhere with internet access. Transactions through hot wallets can also be handled much more practically. However, because hot wallets are connected to the internet, they are vulnerable to cyber attacks. Compared to cold wallets, they can be more easily targeted by malicious programmers.

How do you get a hot wallet?

Getting a hot wallet is quite easy. All you need to do is download and install the hot wallet application you want to use on your device. After installing the application, you need to create a user account and choose a security question. Some cryptocurrency wallets don't require an application. You can register for them through your internet browser.

The most important thing to pay attention to is the 12-word seed phrase created by hot wallets to increase your security. Seed phrases can be thought of as security sentences, and if you lose your seed phrase, you may never be able to access your wallet again. Therefore, it's important to save your given seed phrase in a secure place.

How does a hot wallet work?

Hot wallets generate private keys that prove your ownership of crypto assets. You can think of these keys like account names. Thanks to these keys, you can perform your crypto transactions anonymously. With private keys, you can access the wallet, initiate transactions, and do many other things.

Hot wallets are applications that connect to the internet and allow you to use them. In summary, a hot wallet is an interface that a user uses to access and transact with their crypto assets.

What are the types of hot wallets?

Web, mobile, or desktop wallets with internet connection fall into the hot wallet category.

Mobile Wallet

Mobile wallets use Simplified Payment Verification (SPV) technology. These wallets, which work similarly to mobile applications, are a very fast and practical method. With some models of mobile wallets, you can make transactions quickly just by using a barcode reader.

Web Wallet

This is a type of wallet where private keys are stored on the servers of service-providing companies. Some exchanges also use web wallets to store their users' crypto assets.

Desktop Wallet

Desktop wallets are wallets that are downloaded to your computer and allow your private key to be stored on the hard drive. Electrum, Atomic Wallet, and Bitcoin Core are the most popular desktop wallet brands.

Bank Wallet

After cryptocurrencies increased in popularity in recent years, banks also saw the opportunity and started creating special accounts for their customers to store their cryptocurrency savings.

What are the most popular hot wallet brands?

The most well-known hot wallet examples include the Bitcoin Core wallet that supports Bitcoin Core-based coins, MyEtherWallet that supports Ethereum network-based projects, Litecoin Core wallet that supports Litecoin, TrustWallet, and wallets like MetaMask that are generally developed for the DeFi (decentralized finance) sector.

Which is more secure: hot wallet or cold wallet?

Unlike hot wallets, cold wallets are not constantly connected to the internet. This makes cold wallets less practical but more secure than hot wallets. While the online presence of hot wallets makes them easier to use, it also makes them more vulnerable to cyber attacks. Although cold wallets don't provide ease of use, they cannot be subject to cyber attacks. However, users can efficiently use both systems by transferring their crypto assets from cold wallets to hot wallets when they need to make transactions.

While many investors prefer hot wallets, there are also a considerable number of users who prefer cold wallets. However, research shows that the vast majority of users, almost all of them, use cryptocurrency exchanges. We can say that the main reason for this preference is that transactions are very easy and fast, and also having someone to contact when encountering a problem makes people feel more secure.

You can also easily trade through domestic and foreign cryptocurrency exchanges and keep your crypto assets in the exchanges' own wallets. You can easily open an account and start crypto transactions through Bitlo, one of Turkey's most established and oldest cryptocurrency platforms.