Buying cryptocurrency for the first time can be quite intimidating and there is a lot you need to know. Today we will talk about hot wallets.
Most people think they could purchase crypto via their bank account. The problem is, banks don’t support the technology, blockchain, that almost all cryptocurrency is based on. For right now at least. So, you’re buying a financial asset which is currently outside the realm of mainstream finance. Luckily, there is technology that has been built for people to have their own bank accounts so to speak for their crypto assets.
The important thing to recognize is that after you purchase crypto on a centralized exchange, you will ideally want to send it to a personalized wallet as soon as possible. This is because their has been instances of exchanges crashing and people losing many assets. Don’t worry, this is a very rare circumstance – however, it’s always a possibility to be aware of. That’s why you need to keep your cryptocurrency on a personalized wallet.
We’ll talk more about how to buy crypto on a centralized exchange and how they work in another article soon.
Now, there are many different types of cryptocurrency wallets to choose from. But basically, what you need to know is that there are hot wallets and hardware wallets. Today, we’re going to discuss hot wallets. So what is a hot wallet?
How to use a Hot Wallet
Hot wallets are apps you can add to your phone or extensions to your internet browsers in which you can hold cryptocurrencies. Some popular hot wallets are Trustwallet and MetaMask. When you register a hot wallet, here’s what will happen:
You will have to write down a seed phrase. Think of it like a special password. This seed phrase includes 12 words which you must write down and keep secret. You’ll also be required to set a password for your wallet application. Make sure to write down the password and seed phrase carefully. Make sure you do it correctly. Then, keep it in a safe place where no one else can find. Remember, these are the codes to your own bank account. Optimally, you’ll want to have at least two copies written down so you always have a backup. It’s important to make physical copies of the seed phrase and the password. It’s too risky keeping that information on your computer.
With your wallet, you will receive both a public and a private address key. Your public address is used to receive currency. You may share it openly to peers or exchanges to receive money to your wallet. You also have a private address. This is not to be shared with anyone. If someone gains access to your private address, they can override your wallet and send your funds to their account. So make sure you know the difference between these two and never under any circumstances share your private address on any exchange or individual who says they need it.
Don’t worry, you don’t need to keep a physical copy of your private address key anywhere. As long as you have copies of your seed phrase and password, you don’t have to worry about memorizing or storing your private address key anywhere. Just make sure nobody sees it under any circumstances – no matter what they tell you.
Then we have hardware wallets. The majority of the crypto community agrees that hardware wallets are the safest option. So, we’ll give you all the information you need to get a hardware wallet in another article very soon.
It might seem a bit overwhelming at first. But the truth is, hot wallets are very reliable technologies where you can store your crypto. Make sure to do proper research before deciding which wallet to use. One good way to do this is to check the reviews.
If you liked this article, you might also like the article: What is a Cold Wallet?
Any products mentioned in this article are for educational purposes only.
Aaron is passionate about blockchain and has been an investor in cryptocurrencies for the past years. He enjoys engaging with other people in the cryptocurrency community online, particularly on Telegram, and learning from experts.