If you are a Bitcoin enthusiast or someone who has developed some interest in the digital currency, you must have come across the term ‘hot wallet’ and probably wondered what it means. This post is here to illuminate this aspect of the digital currency payment system.
You are still welcome even if you already have an idea so that you are part of the conversation.
You also do not know the fillers to the knowledge you already have that may come up as we go along.
Now, lets get rolling!
There is also a cold Bitcoin wallet but…..
It is important to mention at this early stage that the opposite of ‘hot wallet’ is a ‘cold wallet’ and we will look at the latter in a coming post, which you should also not miss.
Our attention today is to focus on just this one question; what is a hot wallet?
But, let’s first acquaint ourselves with what a Bitcoin wallet is;
A Bitcoin wallet is a file that contains the details of your public address, where people can send you Bitcoins, and the corresponding private key, with which you access to use these funds. This file can be kept on a desktop, phone, a flash stick or even a paper printout.
In fact, there are no Bitcoins kept in your wallet, as the name seems to suggest.
What defines a Bitcoin hot wallet?
However, from your end as a user, it is enough to know a Bitcoin wallet as a place where you keep Bitcoin money.
Let’s now throw ourselves into the nitty-gritty of a hot Bitcoin wallet.
There is nothing literally hot about it; it is termed so because the file containing your wallet details is stored on a device that is connected to the internet, which makes accessibility easy.
Advantages and disadvantages of hot wallets
The internet connectivity of the hot wallet is a good thing since it makes access to funds for transactions easy and convenient. However, it also comes with risk of hacking and theft of private keys.
In fact, most of the large losses in Bitcoins around the world have been attributed to compromised hot wallets.
Due to this fact, it is advisable for every holder of Bitcoins to only keep small amounts of Bitcoins in their hot wallet. The rest of the money that is not immediately needed should be kept in wallets that are not online.
Do you think the fact that hot wallets are faced with security risks takes away the convenience of using Bitcoins?
Share your opinions below on this and other points brought up in the blog post.