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Hot Wallets

A hot wallet keeps its private keys on a device connected to the internet. This chapter covers what that specifically means for security, and where hot wallets fit in the broader tradeoff space this section's remaining chapters (particularly Cold Storage) explore from the opposite direction.

The defining property

"Hot" describes network connectivity, not any particular device type or software, a desktop wallet application, a mobile app, a browser extension, and an exchange's custodial holding system (see Custodial vs Non-Custodial Wallets) are all hot wallets if the private keys they use are ever present on an internet-connected system. The connectivity is precisely what makes them convenient (funds can be spent immediately, without any offline signing step) and precisely what makes them a larger attack surface: malware, phishing, and remote exploits (see Private Key Theft) generally require some form of network reachability to a device actually holding key material to succeed at scale.

Why hot wallets exist despite the risk

The convenience tradeoff is real and, for many use cases, worthwhile: an everyday spending wallet, a small operational balance for a business's routine payments, or funds actively being used in a Layer 2 or DeFi context all benefit from a hot wallet's immediate, frictionless signing, the same way most people don't keep their entire net worth in physical cash in a safe simply because bank accounts carry some risk of fraud. The generally accepted practical guidance, echoed across security-conscious parts of the Bitcoin community, is to hold only what you're comfortable losing (or actively need for near-term spending) in a hot wallet, and move larger, longer-term holdings to cold storage.

Common misconceptions

A hot wallet is not inherently "bad" or a sign of poor practice. It's a specific point in a security-versus-convenience tradeoff, appropriate for specific use cases and inappropriate for others, exactly like carrying cash in your pocket is reasonable for a coffee and unreasonable for a house down payment.

Software wallet and hot wallet are not perfectly synonymous, even though most software wallets are hot in practice. A software wallet run on a permanently offline, air-gapped machine (used only to sign transactions passed to it via removable media or QR codes, then broadcast from a separate connected device) is cold, despite being "just software," because the actual key material never touches an internet-connected device.

Further reading

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