Hot storage of cryptocurrencies – what is it?

Hot storage refers to the following methods of holding digital assets:

In online applications and online wallets;
On exchange accounts;
On accounts of other trading platforms.

All these methods have one factor in common - storing information online. Let's take a closer look at hot storage and its features, advantages, and disadvantages.

What advantages are provided to users?

Such wallets allow for the fastest blockchain transactions. Users can download a small application and start using it with a few clicks. The installation does not require downloading several gigabytes of data, as is the case with cold wallets.
Online wallets provide quick access and have additional features for convenient use. Exchange wallets allow for lightning-fast trading transactions. The security of users' funds is in the hands of the companies that create these wallets.
There are wallet extensions available for web browsers, which are even more convenient. However, security concerns are shifted to the owner of the computer.
When using wallets of this kind, it is necessary to securely record the mnemonic phrase. It will be required each time the wallet is launched and will prevent unauthorized access.

Disadvantages of hot storage

The need for an internet connection when using a hot cryptocurrency wallet is the most significant disadvantage. Data leaks from the servers of cryptocurrency companies or a computer infected with malware can result in the loss of all tokens.
Before using an online token storage service, it is necessary to research the project to assess its reliability. Personal computers should be protected from viruses and phishing programs that increase the risk of private key or mnemonic phrase leakage.
Hot wallets should be used for transactions and trading activities. Long-term storage is better conducted using paper or hardware wallets.