Definition
A hot wallet is a wallet whose signing keys are available in an online environment. Mobile apps, browser extensions and desktop programs can function as hot wallets when they keep usable keys on connected devices. The term describes the signing environment, not whether a user or a custodian controls the keys.
How It Works
A hot wallet can prepare, sign and broadcast a transaction with little interruption, which is useful for regular payments and application interactions. Local encryption and an unlock password may protect stored keys, but the wallet must still make signing possible during use. In contrast, an app connected to a hardware signer does not necessarily hold the private keys itself: its interface being online does not alone determine the custody setup.
Key Considerations
Malware, phishing and deceptive transaction requests can expose funds. A password does not undo a malicious transaction that the user approved. Keep software updated, protect recovery information offline, and inspect the asset, recipient and permissions before signing. Limiting the balance used for daily activity can reduce the amount exposed, but does not eliminate risk. Where applicable, move longer-term holdings to a separately secured signing setup rather than reusing an already exposed recovery phrase.