Hot wallets are Bitcoin wallets that are connected to the internet.
Only small amounts of your Bitcoin should be stored in hot wallets. No more than you are willing to lose!
Operating a Hot Wallet
Hot wallets are risky to operate. Since the wallet is connected to the internet, a compromise of the device or server that the hot wallet resides on can lead to stolen Bitcoin. The benefits of hot wallets are that Bitcoin can be transferred to other wallets on demand.
Best Practices for Hot Wallets
- Only keep an amount that you are willing to lose in a hot wallet
- Software that uses a hot wallet should have a limit on how much can be transferred in a single transation
- Software that uses a hot wallet should have a limit on the number of transactions in a given time period
- Bitcoin should be taken out of a hot wallet and put into cold storage once it reaches a certain amount
- Ensure that any software running on the same device as the hot wallet is secure and has the latest patches