Hot wallet

‘Hot’ means the private keysGlossaryPrivate keyA secret, randomly generated number that you use to sign transactions and so control your bitcoin. Anyone who knows the private key can spend the bitcoin that belongs to it – it must never fall into anyone else’s hands.On the learning path: Stage 5 · Step 3 – Backing up your seed phrase →In the glossary →× are stored on a device connected to the internet – usually a wallet app on a smartphone or a program on a computer. The counterpart is cold storageGlossaryCold storageStoring bitcoin in a way that keeps the private keys from ever touching the internet – for example on a hardware wallet or an offline device. It protects against online attacks, but requires a carefully kept backup.On the learning path: Stage 5 · Step 1 – Understanding custody →In the glossary →×, where the keys are never online.

What it’s good for

• quick payments on the go, including via the Lightning NetworkGlossaryLightning NetworkA second layer on top of Bitcoin for fast, low-cost payments. Amounts move off the blockchain via payment channels; only opening and closing a channel ends up in a block as a normal transaction.On the learning path: Stage 1 · Step 3 – How does Bitcoin work? →In the glossary →×
• smaller amounts you’ll spend soon
• learning and trying things out

The risk

Anything online can be attacked remotely: malware, fake apps or phishingGlossaryPhishingFraud using fake emails, text messages, websites or calls that look like genuine exchanges, wallet makers or banks. The goal is your passwords, 2FA codes – and above all your seed phrase.On the learning path: Stage 6 · Step 2 – Spotting scams →In the glossary →× can steal the keys or the seed phraseGlossarySeed phrase (recovery phrase)A sequence of usually 12 or 24 words from which your wallet derives all its private keys. Anyone who knows the words has full access to your bitcoin – so they belong in an offline backup and never in anyone else’s hands.On the learning path: Stage 5 · Step 3 – Backing up your seed phrase →In the glossary →×. Exchanges are affected too: at Mt. GoxGlossaryMt. GoxA Japanese Bitcoin exchange that collapsed in February 2014. Around 850,000 BTC were missing; just under 200,000 turned up again. Since July 2024, the trustee has also been repaying creditors in bitcoin; the current deadline is 31 October 2026.On the learning path: Stage 5 · Step 1 – Understanding custody →In the glossary →×, according to a later analysis, bitcoin was stolen from the hot wallet bit by bit from late 2011 onwards.^[1]

Rule of thumb

The Bitcoin Wiki gives the example of an exchange that keeps online only what it needs for one day’s expected withdrawals; the rest is held offline.^[2] For you, that means: a hot wallet is your everyday wallet, not your safe. Larger amounts you want to hold for a long time are better kept in cold storage.

A hot wallet needs a safely written-down seed phrase too – it lets you restore your funds if you lose your phone.