Hot Wallets: Who is it for, pros and cons Discussed

Cryptocurrencies are stored in special software called a cryptocurrency wallet. These wallets are of two types:

1. Hot wallet: A wallet that is always connected to the internet. Thus, allowing you to access your funds immediately. This flexibility comes with a disavantage of lack of security. Hot wallets are more prone to hack as compared to hardware or non-custodial wallets. Most software wallets are hot wallets.

2. Cold wallet: Wallets that are not always connected to the internet. In order to use the funds on these wallets, you will need to connect it to the internet. These are among the safest options to store your long term holdings. However, moving of funds back and forth is not easy.

Pros of Using a Hot Wallet

  • They provide immediate access to all your funds at any time.
  • They are available free of cost and also support multiple platforms. Thus, allowing you to access your funds from anywhere.
  • Hot wallets are extremely beginner friendly.
  • Hot wallets usually provide multiple backup options which are generally not available on cold wallets.
  • By using the hot wallets provided by exchanges, users are also insured for the funds that they deposit in that wallet. Eg: Coinbase.

Cons of Using a Hot wallet

  • Hot wallets are generally secure but they still do not offer the same level of security offered by cold wallets. As these wallets are always connected to the internet, there is always a risk of getting hacked and eventually losing your funds.
  • Hot wallets run on centralized servers. These are prime targets for hackers. Additionally, these servers cannot handle an unlimited number of transactions. Thus, you might experience some delays in transactions from time to time.
  • Some of the hot wallets, like those provided by the exchanges, don’t give you access to your private keys. Thus, you never have full control of your funds in this case.

Hot Wallets: Who is it for?

Hot wallets are ideal for an active trader or for someone who is just getting started with crypto. If your holdings are less than $1,000 – you can make use of Hot wallets. Once your holdings grow, it is best that you shift it to hardware wallets. For traders, active movement of funds is very important and hardware wallets do not provide that flexibility. Diversifying your holdings across multiple hot wallets can be a great strategy for beginners.

Here are some top crypto wallets as per Reddit.


Hot wallets are extremely beneficial for beginners who tend to store small amounts of cryptocurrencies. However, if you are planning to store a large number of cryptocurrencies or wish to trade frequently, opt for a cold wallet instead.

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