If you are new to the blockchain and cryptocurrencies, the first thing you need to decide is how you will be using those cryptos. If you are an investor who intends to build value in accumulating cryptos, then this is probably something you wouldn’t need. On the other hand, if you are going to ‘spend’ your cryptos to buy products or services, you will need a hot wallet in which you can access your tokens.
You may be wondering why you would want to spend cryptos when you can easily complete online transactions by more traditional means using credit or debit cards. That is a very good question and one which can be easily answered. The reason people are investing in cryptocurrency is for the heightened level of security they offer. Also, because of this higher level of security, more and more eCommerce merchants are beginning to accept cryptos as a form of payment.
Hot Wallets – The Basics
In effect, hot wallets are not unlike those wallets in which you carry your cash and various forms of identification in your pocket except hot wallets only exist in the digital realm. The ‘cash’ would be your cryptocurrency and the forms of identification would be public and private keys. These work similarly to having online accounts in which you are identified by a username (public key) and can only be accessed with a pin (private key). That’s as basic as it gets.
Relative Conversion Rates are Important Too
Depending on how new you are to cryptos, you may want to have ready access to one of the many cryptocurrency calculators on sites like OKX. These help you to make purchasing decisions much like you would when using any other means of payment. One of your main concerns is relative value to sales price and for that, you may very well need that conversion tool.
Since you are well acquainted with your country’s fiat, you know that you wouldn’t want to pay $5 for a pack of chewing gum. Unfortunately, without a conversion tool, you may be totally clueless as to the real price you are paying in cryptos. It’s all relative.
Cold Wallets to Hot Wallets
Another basic concept you need to master is the difference between cold wallets and hot wallets, also called cold storage and hot storage. If you have amassed a significant amount of value in your cryptos, you will probably want to keep them in cold storage. You can’t spend these cryptos so think of cold storage as you would a box in your bank’s vault. Until you move those cryptos out of cold storage into hot storage (hot wallets) you can’t spend them.
This is the briefest of guides to the concept of hot wallets, but it should help you understand what they are and why you need them. If you are only going to grow your cryptos, then cold storage is more appropriate. However, if you are going to use cryptos as a highly secure method of making transactions, you will need to have sufficient tokens in your wallet much like when making a purchase at your local department store.
If you don’t have enough money in your physical wallet, you can’t buy anything. That’s the same concept as a digital hot wallet for crypto transactions, and again, about as basic as it gets.
Also read: Ethereum Classic – Types of Wallets