By Natalie Lord
Last week we started looking at the latest in designer wallets for crypto enthusiasts and explored the upside and downside of hard wallets. Today we’ll be looking at hot wallets.
As a quick reminder, crypto wallets are in their simplest form an app, a website or device that manages private keys to enable you to use your digital currency. Private keys are chains of secret codes that enable you to use your currency.
A crypto wallet is the equivalent of a bank account that allows you to send, receive and store Bitcoin and alternative currencies, and is comparable to how an online bank account works in relation to the traditional monetary system.
Hard wallets are tangible electronic devices built specifically for the sole purpose of securing cryptocurrency tokens. Hot wallets, however, are wallets that run on internet-connected devices like a computer, mobile phone or tablet. A hot wallet refers to a cryptocurrency wallet that is online and connected to the internet and that therefore its coins are not being kept in cold storage.
Hot wallets are the easiest way of storing small amounts of cryptocurrency. They are convenient to use and spending and receiving payments is easy and fast. Some hot wallets even allow access to funds across multiple devices. Another upside is that hot wallets are free.
The downside of a hot wallet is that because they generate your private keys (security codes) on devices connected to the internet, they can’t be considered to be 100% secure. You would use a hot wallet in the same way that you would use a cash wallet. It allows easy access but has a risk of being unrecoverable in the event of theft. You would put some money in it, but not your life savings.
Deciding which wallet best suits your needs will depend on whether you’re investing or saving cryptocurrencies. A hardware wallet will keep your coins secure, but a hot wallet makes sending and receiving coins a lot easier.
Some investors keep their coins in accounts that are linked to popular exchanges like Poloniex or Bitstamp. These companies hold your cryptocurrency within their own infrastructure and they can therefore be considered to be hot wallet providers. If a hacker breaks into the company servers and accesses your account you could incur a loss. The best solution here is to maintain a balance in your accounts that is low as a high balance will attract the attention of hackers.
There are a wide selection of hot wallets available. Some offer user interface experiences, whilst others are designed to be used in partnership with other specific apps or with certain cryptocurrencies.
One critical point to bear in mind is that if you’re downloading a hot wallet you should be vigilant as there are a large number of scam wallets in the ether. They can even be found on Google Play Store and Apple app store and are designed specifically to steal your cryptocurrency.
A sensible line of research is to look into the team that developed the hot wallet you’re interested in before you download and adopt their service. Develops have different priorities when creating their wallets, varying degrees of expertise and differing commitments to privacy and security. They also employ different strategies around updating their products. The best course of action is to find a hot wallet provider that demonstrates a willingness to continually update their product as hacking attempts adapt and change.
So if you’re thinking of going down the hot wallet route, remember to do your research before investing in one and keep your coin count low.