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Hot Wallet
A Hot Wallet is a term used in the field of cryptocurrency. Think of it as a digital purse or bank account that holds your cryptocurrency - such as Bitcoin - and is constantly connected to the internet.
Functionality
The reason these wallets are 'hot' is because they are online and therefore active, much like how you might refer to a hot dessert as fresh out of the oven. Just as a hot oven can help you make food but also poses a potential risk if not handled carefully, a hot wallet gives you great accessibility to your cryptocurrency but comes with its own risks.Cryptocurrency Transactions
To make any type of transaction with your cryptocurrency, you need to use a hot wallet. This is akin to getting money out of your bank account to pay for a purchase. Transactions in a hot wallet happen through a process called cryptography, with each transaction being recorded on a digital ledger known as a blockchain.Flexibility
Hot wallets stand out for their flexibility. If you want to buy a coffee with your Bitcoin in a café that accepts it, for example, you would need a hot wallet for the transaction. It allows for instant transactions, anytime and anywhere, as long as you are connected to the internet.Risks and Security
Just like anything valuable that's linked to the internet, hot wallets can pose a risk if not properly secured, since they can potentially be a target for hackers.Types of Hot Wallets
There are several types of hot wallets, including:- Online Wallets: These are wallets run on the cloud and accessible from any computing device in any location.
- Mobile Wallets: These are apps on your phone. They have the advantage of being used anywhere, including retail stores for payments.
- Desktop Wallets: These are downloaded and installed on a PC or laptop, accessible from the single computer in which they are downloaded.