Why not to use a Hot Wallet?

Among the options available for storing and managing crypto holdings, hot wallets stand out for their convenience and accessibility. However, they also come with inherent risks that every investor should carefully consider.

1. The Convenience of Hot Wallets: Hot wallets, also known as online wallets, are digital platforms that store your cryptocurrency assets and allow you to access them conveniently over the internet. They come in various forms, including web wallets, mobile wallets, and desktop wallets, and are popular among users for their ease of use and instant accessibility. With a hot wallet, you can quickly send and receive funds, check your balance, and engage in transactions on-the-go.

2. The Vulnerability to Hacks: Despite their convenience, hot wallets are not without risks. One of the most significant concerns is their vulnerability to hacking attempts. Because hot wallets are connected to the internet, they are susceptible to cyber-attacks and security breaches. Hackers may exploit weaknesses in the wallet's infrastructure or target individual users through phishing scams, malware, or other malicious tactics. A single security breach could result in the loss of your entire cryptocurrency holdings, making it crucial to prioritize security when using a hot wallet.

3. The Lack of Control Over Private Keys: In a hot wallet, your private keys are typically stored on a server controlled by a third-party provider. While this setup offers convenience, it also means that you're entrusting your keys to someone else. This goes against the fundamental principle of decentralization that cryptocurrencies aim to achieve. If the provider experiences downtime, data breaches, or goes out of business, you may lose access to your funds indefinitely. Additionally, storing private keys online increases the risk of unauthorized access and potential theft.

4. The Centralized Points of Failure: Another concern with hot wallets is their reliance on centralized entities, such as cryptocurrency exchanges or online wallet providers. These centralized points of failure pose significant risks, as they can be targeted by hackers or subject to regulatory actions. If the service experiences a security breach or regulatory shutdown, your funds could be frozen or lost entirely. Moreover, centralized entities may impose restrictions or fees on your transactions, limiting your financial autonomy.

5. The Importance of Security Measures: While hot wallets may offer basic security features, they often lack the robust protection found in hardware wallets or cold storage solutions. Without features like multi-signature authentication, encryption, or offline storage, hot wallets remain more vulnerable to unauthorized access and potential theft. It's essential for users to prioritize security and implement additional measures, such as two-factor authentication and regular software updates, to enhance the safety of their cryptocurrency holdings.

Simple answer: Because it costs only 80$ to buy a Hardware Wallet and wipe out 30% of all risk.