Hot Wallet

A hot wallet is a tool that allows a bitcoin owner to receive and send bitcoin using software on a desktop or mobile device. Unlike traditional currencies, there are no dedicated banks or physical wallets that can be used to keep bitcoin holdings secure. Hot wallets allow you to interact directly with the bitcoin blockchain via the wallets node, a node of your choosing or your node.

Hot wallets are commonly used to store and protect your holdings, and they come in many different forms and varieties.

A hot wallet gets its name from the fact that the keys are generated on a device that is attached to the internet. Your keys are hot and could be accessed through vulnerabilities in the device you’re using to store your bitcoin.

A bitcoin hot wallet is your first step to self-sovereignty; it is a piece of software that allows you to generate a wallet based on a public and private key. When you create a hot wallet, you generate a set of private keys, also known as a seed phrase; you have a wallet that ONLY you have access to; this key is unique to your wallet.

Once you’ve saved your private keys in a safe place, no one can access your funds but you. You are now free of third party risk as you now take control over your bitcoin, and you’re not leaving it with an exchange or custodial wallet service provider.

You can restore your wallet to any hot wallet software from the list below, so you are not tied to one service provider; they are merely tools to interact with the bitcoin blockchain.

Once set up, your hot wallet will allow you to manage your funds and generate new public addresses to receive bitcoin and send bitcoin to other public addresses.

While a hot wallet is a significant first step to taking control of your bitcoin, it is by no means a fully secure method of storing your coins. If you do opt for this solution, know that it should only be temporary, and you should not store a large amount of money on these wallets. Consider a hot wallet as your chequing account and only keep an amount you may want to use or move around regularly. 

Hot wallets are also a great way to consolidate your funds before moving them into cold storage or as a stop-gap until you get your cold storage set up. 

When setting up a hot wallet, ensure you do it on a device that you do not share with others, or others can gain access to pretty easily as they will have access to your wallet. 

You will need to store your private keys offline and in a safe place; your device may still keep remnants of the keys but do not keep files that hold your keys, such as word documents, text files or images.

Finally, regarding keys, you should always have copies and try to create a copy on something more robust than paper, like a metal storage device to protect you against fires or any damage to your seed phrase. 

When generating bitcoin public addresses from your wallet

Always check addresses before confirming transactions: Even though malicious actors can’t remotely hack the hardware wallets that sign bitcoin transactions, they can still use other methods to trick you out of your bitcoins. For instance, some cryptocurrency malware modifies the bitcoin addresses you copy into your clipboard. 

So, while you think you are copying the bitcoin address of a friend into your wallet, you might end up with an unknown address that belongs to a hacker. First, make sure the source of the address is legitimate. Also, always double- and triple-check the address before confirming any transaction. 

You should check every single character in the address, but some tend to try to shortcut by comparing the first and last four letters in the site you got the address from (eCommerce website, email, etc.), your software wallet, and your hardware wallet display (if it has one), should be enough.

If it’s a small transaction, however, larger bitcoin transactions, you should ensure that you review your wallet address thoroughly.