What is a hot wallet?

How easily do you want to use your crypto, and what risk does that convenience bring?

Think of a hot wallet as the wallet in your pocket: handy for everyday use, but not the same as a safe. It’s usually a mobile app, a desktop program or a browser extension.

Your cryptocurrency isn’t inside the app. The relevant records live on the blockchain, and the wallet uses your private keys to sign transactions. In a typical self-custody hot wallet, the keys are stored on your device and signing happens there. They don’t need to be sent to a server for the wallet to work.

For example, you open the app, enter the recipient’s address and approve a transfer. The wallet signs the transaction and broadcasts it to the network. Its confirmation and fees depend on the blockchain, not on whether the wallet is hot or cold.

Why it matters

A hot wallet makes payments and connecting to decentralized apps (dApps) easier. That convenience comes with greater exposure to online threats, such as malware and fake apps.

We find it useful to separate two questions: whether the keys are online, and who controls them. “Hot” describes the first. An exchange may also use hot wallets, but there the keys are managed by the provider, not the user.

What to watch out for

A fake page may ask for your seed phrase (recovery phrase) or trick you into signing a dangerous approval. Simply connecting to an app doesn’t automatically give it access to your funds, but some approvals allow specific tokens to be transferred. Check exactly what each signature asks for.

The app’s password doesn’t protect an exposed seed phrase. If someone gets hold of a wallet’s recovery phrase, they can restore its keys elsewhere.

Finally, an app that connects to a hardware wallet doesn’t by itself turn the device into a hot wallet: the keys stay on the hardware wallet. But if you enter its seed phrase into an online app, that isolation is lost.