A hot wallet is essential for making cryptocurrencies tradable, as these digital wallets are necessary for storing the public addresses required for transactions. Trading crypto without a wallet is only possible if a custodian bank provides this service. From a technical perspective, even in traditional online banking, a digital value store is required to manage assets, similar to how a hot wallet operates. In the crypto market, wallets vary in how they connect to trading platforms and handle the storage of private keys, making thorough analysis before selection crucial. Here are the most important details about hot wallets.
This 2025 hot wallet comparison highlights the best features, advantages, and disadvantages of various hot wallets tested. We evaluated providers and apps where you self-custody your private keys. We conclude with our top 5 hot crypto wallets. We also reveal an innovative method for securing your seed phrase.
How Do Hot Wallets Work?
Hot wallets store and transfer cryptocurrencies through standard web browsers because the keys required for signing transactions are stored on the providers' servers, which are often trading platforms.
Using a hot wallet is based on trust in the provider, as they typically manage the keys necessary for securing transactions. However, due to security concerns, some providers have recently shifted to allowing customers to store their own private keys.
Hot wallets are among the most commonly used digital wallets because their practical benefits outweigh some security worries. Thanks to improved regulatory requirements, hot wallet developers and providers are now obligated to implement stricter protective measures, from which users benefit and which strengthen the entire crypto market.
What Is a Hot Wallet?
A hot wallet is typically a software or application that connects to the provider via an internet browser, giving investors the ability to store and transfer held digital assets. They are usually integrated with crypto trading platforms, though some providers have developed their own independent hot wallets.
Controlling digital assets from a central location offers numerous advantages for hot wallet users. They don’t need to perform configurations like those required for a hardware wallet, nor do they need to safeguard private keys, which reduces personal risk.
Every crypto address originates from a private key, which, combined with a public key (also known as a wallet address), forms the complete address. Due to the internet connection via a browser, depending on the operating system and web browser used, so-called browser artifacts can be stored. These data remnants can be used for forensic investigations but also by fraudsters.
Types of Hot Wallets
Since the terminology for hot wallets and other categories of crypto wallets is not standardized, distinguishing between them isn't always straightforward. Fundamentally, hot wallets are connected to the internet via software, a program, an application, or a tool to be fully functional. If this connection is interrupted, for instance by malicious actors, data theft can occur. Attackers often target private keys to conduct transactions that ultimately lead to the loss of digital assets.
Therefore, selecting the best hot wallet should be done primarily with security in mind. Here’s our wallet comparison to help you understand the different types.
Exchange Wallets
Exchange wallets are inextricably linked to a virtual trading platform, whether it's a centralized or decentralized environment. An exchange wallet is like a virtual depot from which traders control and custody cryptos, among other assets. Various exchange wallets are available, and this category can be further subdivided.
Distinguishing between exchange wallets and software wallets isn't straightforward due to a lack of naming standards. In both cases, a software-based solution, not a physical device, serves as the gateway to crypto trading.
Some exchange wallets are free, while others come with usage fees. Exchange wallets may, but do not necessarily, store users' private keys, which presents a security risk. Nonetheless, exchange wallets are the most popular type for traders seeking minimal effort in asset storage and who appreciate straightforward processes similar to online banking.
Software Wallets
As mentioned, exchange wallets are typically software-based applications that can be thought of as small utility programs. However, they are not always tied to an exchange, which allows for a distinction from pure exchange wallets. The market offers both reputable and, unfortunately, often disreputable software wallet providers and products. Prior scrutiny of the offering, in-depth research, and a critical look at the provider's technology give traders a solid foundation for finding a suitable software wallet.
Comparing software wallets vs. hardware wallets, the key difference is that hardware wallets exist as physical devices, independent of their internet connection. Market leaders in this wallet type are Trezor and Ledger. Some of the most well-known software wallets include MetaMask and Exodus.
Desktop Wallets
Desktop wallets store users' private keys on their computers, making them only as secure as the machine is protected from unauthorized access. Two-factor authentication is a prime example. The biometric security of the customer account is done via a special key press and fingerprint/face scan.
If the desktop wallet isn't protected with an additional safeguard, like a password, unauthorized access can occur. A positive aspect of desktop wallets is that they store private keys on the user's computer. However, it's also critical that as long as the computer is connected to the internet, there is a theoretical risk of a hack resulting in the theft of private keys.
Downloading unknown software also carries various risks generally related to privacy policies and malware. Those opting for a desktop wallet should thoroughly vet the provider beforehand and not rely solely on recommendations from forum participants, Telegram groups, or friends. MetaMask is an established provider of a desktop wallet with its own add-on. Access is gained by clicking the logo in the browser toolbar.
Desktop wallets are generally cold wallets because they don't require a permanent internet connection. This means the connection is only active when the computer/device is turned on or in sleep mode. This connection is technically necessary and can be relatively easily misused by third parties. Therefore, special precautions are advisable, such as an authentication app on a mobile device or the mentioned biometric process for logging in.
Note: Always ensure you use the original link to download a desktop wallet, as many copycats are out there looking to trap unsuspecting traders.
Mobile Wallets
Mobile wallets are optimized for display on mobile devices. Trading, like many other areas of daily life, is increasingly shifting to smartphones. We don't just live with our phones; they have become one of the most important interfaces in digital life. Mobile wallets are typically limited in their functional scope compared to software wallets and desktop wallets, providing users with access to the most commonly used areas in trading. The selection of coins, assets, and offered trading options can be restricted on mobile wallets.
Disadvantages of mobile wallets appear not only in limited access but also in restricted or non-existent options for transferring assets from a depot into the wallet or between different wallets. Using the desktop version of an exchange simultaneously with the mobile version can also be limited with some providers. Unfortunately, it's still common in the market for users to be unable to log into an application from two devices at the same time.
Mobile wallets are ideal for traders who want to trade cryptos quickly and easily on the go and need access to basic order types. Semi-professional traders or those desiring more choices in assets and order types might quickly find a mobile wallet limiting.
Browser Wallets
Those interested in the answer to the question: Browser wallets vs. Desktop wallets will quickly notice the boundaries are fluid. A universal distinction can only be made based on the visual storage location or access point to the wallet. A browser wallet requires an internet browser; a desktop wallet can be stored on the desktop.
Both crypto wallets are software wallets, and most of them are also hot wallets. However, accessing the trading environment without an internet connection is impossible for both browser wallets and desktop wallets.
Therefore, a browser wallet is often the more convenient way to access the wallet. Those who prefer working on large screens or use many different internet browsers might find a desktop wallet, visually displayed as an icon, more manageable. Not all browser wallets are usable by default on all common browsers, which could restrict their convenient use. In this case, a desktop wallet might be more suitable.
Online Wallets
The umbrella term "online wallets" encompasses all crypto wallets that require a permanent or semi-permanent online connection to function. Access to online wallets should be protected with appropriate authentication measures. An online wallet can manifest as a desktop wallet, software wallet, hot wallet, cold wallet, browser wallet, or mobile wallet.
Online wallets, alongside hardware wallets, should be understood as a super-category describing the type of connection for communication between wallet addresses and/or exchanges, as well as other functions and areas, such as the decentralized finance sector or P2P trading.
Cloud Wallets
Cloud wallets are considered by some providers as the new standard for financial transactions because they offer a high degree of flexibility and comfort. With cloud wallets, the private keys are stored in the cloud, and the user has no control over where this cloud is located or which regulatory jurisdiction its location (the provider's?) falls under.
Cloud wallets belong to hot wallets and are considered software wallets. Unlike many other wallets, providers have moved away from storing private keys for their customers. Instead, they are stored in so-called key escrow, from where they can be retrieved by the user at any time. Key escrow refers to a "fair" cryptosystem based on an agreement. This agreement is made between the cloud wallet provider and the user and involves the fiduciary storage of the keys.
Even if this sounds like a sensible concept initially, it must be considered that unauthorized persons could potentially gain access to the stored key via data connections. In the end, it doesn't make much difference whether private keys are stored with a wallet provider or by them in a "fair" cloud system. The risks are only relocated geographically but remain the same.
One of the first cloud wallets on the market appeared from Huobi in 2021. However, this software wallet only grants limited access to decentralized financial services and DeFi applications. The security precaution also necessitates individual checking and approval for each access to the selected interfaces. This effort is good on one hand, but it also makes the use of this cloud wallet only limitedly possible.
New Crypto Wallets
Besides cloud wallets, more and more innovative developments are available where crypto wallet providers focus on security precautions and ease of use. Some wallets are complex to use; others prefer practical solutions for users. This is just a small selection of new crypto wallets on the market:
- Seed Phrase Wallet
- Keyless Wallet
- Smart Wallets
- Slim Wallets
- Minimalist Wallets
- e-Wallet
Hot Wallets: Advantages and Disadvantages
Hot wallets offer advantages in terms of practical application, easy handling, and time savings. The disadvantages of hot wallets lie in security aspects, as they must maintain a permanent connection to the internet. The pros and cons of hot wallets must be weighed against each other to ultimately decide on the individually suitable crypto wallet.
Here are the individual advantages and disadvantages of hot crypto wallets:
Advantages:
- User-friendly storage and transfer of digital values
- Possible integration into exchanges of a decentralized or central nature
- Often integrated free of charge in customer accounts of trading platforms
- Particularly for beginners, the first step into crypto trading
- Offer numerous trading options and access to leading altcoins
Disadvantages:
- Users are often unaware of the specific risks
- There are also disreputable providers and products on the market
- No clear distinction or standardization of the wallet type is discernible
Hot Wallets vs. Cold Wallets
Whether hot wallets or cold wallets are better depends on various factors on the user side and individual trading behavior. But it is primarily the aspects of security and recovery that ultimately influence the decision for a hot wallet or a cold wallet.
Differences Between Hot Wallets and Cold Wallets
There are significant differences between hot wallets and cold wallets that go far beyond the manner of internet connection. To make the various properties of hot wallets and cold wallets more understandable, we have created the following table for easy comparison.
The security of hot wallets and cold wallets is evident not only in the connection with the blockchain or the encryption of data. The individual trading volume as well as the costs for hot and cold wallets can also be decisive for the selection.
Top Hot Wallet Considerations for 2025
Selecting a hot wallet requires careful consideration of security, supported assets, ease of use, and fees. The best choice depends on your individual needs, whether you're a frequent trader or a long-term holder looking for quick access.
For those managing diverse portfolios across multiple blockchains, a wallet supporting a wide range of networks is crucial. 👉 Explore multi-chain wallet options to find one that suits your asset allocation.
Security should always be a top priority. Look for wallets with a strong track record, transparent security practices, and features like two-factor authentication (2FA). While hot wallets are convenient for daily use, consider the amount of crypto you store in them versus more secure cold storage options.
How to Securely Store Your Seed Phrase
A seed phrase is like an additional password used to recover assets in a crypto wallet. Many crypto traders using a wallet for the first time search for practical yet secure methods to store their seed phrase.
The most common method has been to simply write down the 12 or 24 words on paper, a method that carries inherent risks. Innovative physical storage solutions, like steel plates, offer a more durable and secure alternative.
These plates, often made from titanium, allow users to engrave their seed phrase words directly onto the metal, protecting them from fire, water, and physical damage. Using a gravity-fed engraving pen, users can permanently etch their recovery phrase onto the plate after purchase.
When used in combination with hardware wallets, these metal seed plates are considered far more secure than paper wallets. Sets are available for engraving single, double, or even multiple seed phrases, providing robust protection for your digital wealth. 👉 Discover secure storage methods for your recovery phrases.
Frequently Asked Questions
What makes a hot wallet "hot"?
A hot wallet is considered "hot" because it remains connected to the internet. This connection is necessary for it to perform its core functions, such as sending, receiving, and displaying cryptocurrency balances in real-time. This contrasts with "cold" wallets, which store private keys offline.
Are hot wallets free to use?
The cost of using a hot wallet depends primarily on the fees charged by the provider, which can be in addition to standard network costs. Many providers offer a software or mobile wallet as part of a registered customer account, which is typically free to use. However, transaction fees (gas fees) are always incurred when moving assets on the blockchain.
Can I use a hot wallet for Solana?
Yes, there are hot wallets specifically designed for the Solana network, such as Phantom and Solflare. Furthermore, many of the popular multi-chain hot wallets also support Solana (SOL) and other tokens within its ecosystem due to the network's significant popularity.
Is MetaMask a hot wallet?
Yes, MetaMask is a prime example of a hot wallet. It can also be categorized as a browser wallet, as the provider was one of the first to develop a browser extension for Chrome and other internet browsers, requiring an active internet connection to function.
Are hot wallets anonymous?
Participating in digital currencies like Bitcoin using blockchain technology does not fundamentally require legitimization. However, hot wallets are usually not anonymous to use. Regulated providers must adhere to various regulations (KYC/AML) to identify their customers. While some wallets prioritize privacy or allow for less-identified use, most are not automatically anonymous.
Is it smart to use both a hot and a cold wallet?
Yes, using a combination of both hot and cold wallets is not only possible but is often a recommended strategy. A common approach is to keep a smaller amount of crypto in a hot wallet for daily trading and transactions, while the majority of one's long-term holdings are secured in a cold wallet. This distributes risk and helps minimize potential losses from hacks.