Are hot wallets suitable for storing large amounts of cryptocurrency?

Hot wallets, offering online accessibility for crypto transactions, come in various types (exchange, mobile, desktop, web). While convenient for frequent trading, their internet connection exposes them to hacking and phishing risks, necessitating robust security measures.

Feb 28, 2025 at 02:54 pm

• Hot wallets are wallets stored online, which allow users to access and transfer assets at any time through the Internet connection. Common types include exchange wallets, mobile wallets, desktop wallets and web wallets.

• The exchange wallet is closely connected to the trading platform, and trading operations are extremely convenient. Mobile wallets facilitate managing cryptocurrencies anytime, anywhere on mobile devices. The desktop wallet is generally full of functions and is suitable for daily operation on the computer. Web wallets do not need to be downloaded and can be used in the browser.

• When a user uses a hot wallet to conduct transactions, the hot wallet will use the user's private key to "unlock" the transaction permissions and prove the user's ownership of the assets.

• Subsequently, the hot wallet sends the transaction information to the huge blockchain network, and after a series of verification and other processes in the network, the transaction is completed. This process is like in the traditional financial system, using a bank card and password to complete the transfer operation in the bank system.

• High convenience : trading can be carried out on the Internet at any time, and asset transfer can be completed quickly. For investors who need to trade frequently and seize the opportunity of instant market fluctuations, hot wallets allow them to buy and sell in time and miss the opportunity to make a profit.

• Good flexibility : supports multi-currency storage to meet investors' diverse investment needs. Investors can manage multiple different cryptocurrencies in a hot wallet without having to find a way to store each currency separately.

• Security vulnerability : Because of its connection to the Internet, it is vulnerable to cyber attacks and hackers. Once a hacker obtains wallet access, he may steal a large amount of money. For example, the Japanese virtual currency trading platform DMM Bitcoin was attacked due to the system, causing a large number of Bitcoin to be illegally transferred.

• Phishing Attacks : Users may fall into the trap of cybercriminals who often disguise themselves as legitimate services in an attempt to steal the user's private key or login credentials. For example, receiving seemingly formal emails that induce users to click on links and enter wallet information is actually a trap.

• Limited storage space : Some hot wallets may have limitations in storage capacity, which is not suitable for storing massive cryptocurrency assets. And from a security perspective, a large number of assets are concentrated in a risky hot wallet, and once problems arise, the losses will be huge.

• Choose a reputable service provider : carefully check its historical security records and give priority to service providers with good reputation, long operating time and good safety records in the industry. Just like when choosing a bank, you will prioritize those big banks with great credibility.

• Enable two-step verification : add a layer of protection mechanism, such as SMS verification code, identity verification device, etc. This is like installing two locks on the door, greatly improving safety.

• Regularly check the account : Check the account transaction records frequently and discover abnormal transactions in a timely manner. Just like checking your own financial bills regularly to ensure your funds are safe.

• Avoid using it under public networks : Public networks are low in security and are prone to information stolen by hackers. Try to use hot wallets in your own secure network environment, and do not operate in public networks such as cafes and airports.

• Protect the private key : Private keys are like the keys of wallets. They must be kept properly and not easily disclosed to others. Do not store private keys on networked devices, consider using dedicated devices such as hardware wallets to manage private keys.

• Security comparison : Cold wallets are stored offline, not threatened by Internet attacks, and have high security, suitable for storing a large number of cryptocurrencies that are not used for a long time. Because of the Internet, hot wallets are at risk of being hacked and have relatively low security.

• Convenience comparison : Hot wallets are convenient to operate and can be traded at any time, suitable for frequent daily transactions. Cold wallet operation is cumbersome, and you need to connect to a device or enter a key every time you access the asset, which is not suitable for high-frequency trading.

• Comparison of applicable scenarios : Cold wallets are suitable for long-term investors or users with large asset scale to ensure asset security. Hot wallets are suitable for users who have daily trading needs and need to transfer money quickly or trade instantly on the exchange.

• Use cold wallets : For large-scale funds storage, cold wallets should be selected as much as possible, such as hardware wallets, paper wallets, etc. The offline nature of cold wallets can greatly reduce the risk of being hacked. Although it is not convenient to use, its security performance is fully guaranteed.

• Decentralized storage : Do not store all cryptocurrencies in one wallet, disperse assets in hot and cold wallets. Some of the funds used for daily transactions are placed in hot wallets, and large amounts of funds stored in cold wallets are placed in risk-dispersing.

• Multi-signature technology : Multi-signature technology can be used, requiring multiple private keys to be signed together before transactions can be conducted, increasing transaction security and reducing the risk of assets being stolen due to the leakage of a single private key.