Hot Wallet
Definition
A cryptocurrency wallet connected to the internet, offering convenience for frequent transactions but with greater security risk compared to cold storage.
A hot wallet is any cryptocurrency wallet that maintains a connection to the internet. This includes mobile wallet apps, browser extension wallets (like MetaMask), desktop wallets, and exchange-hosted wallets where the platform holds your keys.
The primary advantage of hot wallets is convenience. You can send, receive, and trade crypto instantly without needing to connect a physical device. This makes hot wallets essential for active trading, DeFi interactions, and everyday crypto payments.
Exchange wallets (Coinbase, Kraken, Binance) are the simplest hot wallets — the exchange manages your private keys and provides a user-friendly interface. The tradeoff is that you don't control the keys ("not your keys, not your coins"), meaning the exchange could be hacked, freeze your account, or go bankrupt.
Self-custodial hot wallets like MetaMask, Trust Wallet, and Phantom give you control of your keys while staying connected to the internet. They're essential for interacting with decentralized applications (dApps) and DeFi protocols. The risk is that if your device is compromised, a hacker could access your wallet.
Best practices for hot wallet security include using strong unique passwords, enabling two-factor authentication, keeping your device and wallet software updated, never clicking suspicious links, and keeping only the amount you need for near-term transactions.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
How much crypto should I keep in a hot wallet?
A common guideline is to keep only what you need for near-term trading or transactions — similar to keeping spending money in a checking account. Long-term holdings and large amounts should be in cold storage.
Are exchange wallets safe?
Major exchanges have strong security measures, but they are targets for hackers and have been breached in the past. Exchange wallets are convenient for trading but not ideal for long-term storage. Consider moving significant holdings to a self-custodial wallet.