I tried to explain what Hot Wallet is in comic strips.
I explained what a Hot Wallet is and how it will be used in a particular situation.
Hot wallets opposite to cold wallets are to connect with the internet. Users can easily use hot wallets to transact their cryptocurrency around the world where the internet gets access. The internet activates the wallet and enables them to transact between users instantly. However, the question of how secure the hot wallet is up to debate. As long as you have a wallet that connects to the internet and where your financial information is posted in blockchain to the public, the security of such a wallet is very vulnerable to attack by hackers. Since people know how much money you possess, likely your large sums of assets are targets for hackers to challenge and break into.
Crypto exchange is nothing but a bundle of hot wallets together on a platform. They are very vulnerable to being attacked because much of the accumulated assets are shared in the pool that the public can research. Hackers are willing to take a chance to break into the system and take away funds if possible. Although many crypto exchange platforms migrate into cold storage, they are still vulnerable to attacks when the wallet becomes hot.
Hot vs. Cold
The terms refer to connecting to the internet or not. Hot means the wallet connects to the internet while cold means they are not connecting. There are no perfect ways to protect your wallets unless that method fits your needs. The choice between a hot or cold wallet depends on how many assets you have within your wallet and what objective you want to achieve with such a wallet.
Who Bears the Risk
The philosophy of cryptocurrency at the beginning was to give as much control as possible to users. Thus, users bear the risk of protecting their own assets. Such an argument is being altered when more and more users join the crypto space without prior knowledge of how crypto actually works. The result of losing funds accidentally through losing private keys to the internet or being physically damaged is common in recent crypto adoption fiasco. Companies like Coinbase have advantages to offer security as their services to users who join crypto without any further knowledge. However, the debate will continue as to whether users should be able to totally control their wallets or not.
Maintenance of Wallet
Whether or not users will control their own wallets, it is always important to update your knowledge and keep tracking the industry technology progress. Since cryptocurrency is a piece of technology, it will evolve gradually. It is important for users to spend time and learn new developments in the crypto space.
The hot wallet is a way to store your crypto assets while connecting online. There is a greater risk of being hacked. However, users will need to upgrade their knowledge constantly to prevent being left out in the crypto space.
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