Cryptocurrencies are created by miners on networks. These cryptocurrencies are then used as investment instruments. Cryptocurrencies that can be bought and sold are listed on various centralized or decentralized exchanges.
These cryptocurrencies listed on exchanges are bought by investors. But for all this, investors need a place where they can store these cryptocurrencies. For this reason, wallets on blockchain networks have been developed for cryptocurrencies.
Every cryptocurrency has a tangible counterpart. Investors can buy, sell and transfer cryptocurrencies. The aim is to create tangible instruments that are independent of centralized authorities such as banks and governments, allowing for freer, faster and more advantageous transactions.
These wallets for storing cryptocurrencies are basically divided into two types. These types are as follows:
- Hot Wallets
- Cold Wallets
Cold wallets use cold storage. Hot wallets use hot storage.
Hot wallets, or online wallets, work by being regularly connected to the internet. These wallets store cryptocurrencies and allow users to manage them.
What Are Hot Wallets Used For?
The purposes of using hot wallets are as follows:
- Transfer cryptocurrencies
- Storing cryptocurrencies online
- Performing cryptocurrency trading transactions
Hot wallets use private keys to facilitate all these transactions. These wallets provide convenience to traders as they have a constant internet connection.
For instance, these wallets can be accessed from anywhere with an internet connection. Transactions with these cryptocurrencies can be carried out quickly and practically through hot wallets. But at the same time, these cryptocurrencies are vulnerable to various cyber-attacks. Compared to cold wallets, these hot wallets tend to be an easier target for malicious people.
How to Become a Hot Wallet Owner?
It is quite easy for any trader to have a hot wallet. All that is required is to download a hot wallet application of the trader's choice to the device they are using.
After installing the respective hot wallet app, the trader must create a user account. The trader then selects the security questions and creates answers. However, some hot wallets do not require any application. Hot wallets that can also be used via web browsers are available on the market.
What Should the Investor Pay the Most Attention to a Hot Wallet?
There are some things that any trader should be aware of when using a hot wallet. For instance, protecting the private key and not sharing it with anyone is one of them. Another thing to be aware of is seed phrases, which are an important security element. Seed phrase is a kind of security sentence. Seed phrase consists of 12 words. Investors who lose their seed phrases may face the danger of never being able to access their wallets again. Therefore, it is important for traders to protect their private keys and seed phrases for the security and access of their wallets.
How Do Hot Wallets Work?
Hot wallets generate private keys that prove that cryptocurrencies belong to investors. With these private keys, investors can carry out crypto transactions anonymously. With private keys, investors can access their wallets and initiate transactions.
More simply put, private keys are the online interfaces that traders need to use to access their cryptocurrencies.
What Are the Types of Hot Wallet?
There are different hot wallets that work with an internet connection. These hot wallets are the following:
- Mobile Wallet
- Web Wallet
- Dekstop Wallet
- Bank Wallet
What Is Mobile Wallet?
Mobile wallets use simplified payment confirmations (SPV) technology. Much like mobile apps, these wallets are fast and easy to use. In some mobile wallets, transactions can be made quickly using just a barcode reader.
What Is Web Wallet?
Web wallets, a type of wallet where traders' private keys are stored on different servers at service providers, work using browser plugins.
What Is Desktop Wallet?
Desktop wallets are applications that traders download to their computers. Once these applications are installed on the computer, investors' private keys are stored on the hard disk of their computer.
What Are the Examples of Desktop Wallet?
Here are some popular desktop wallet applications:
- Electrum
- Atomic Wallet
- Bitcoin Core
What Is Bank Wallet?
The growing interest in cryptocurrencies has also attracted the attention of banks. Some banks saw this opportunity and started to create wallets for their customers to store their cryptocurrencies.
