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Hot‑Cold Wallet

1 min read
Pronunciation
[hot-kohld waw-let]
Analogy
Like keeping a small amount of cash in your pocket (hot) and the rest in a safe at home (cold).
Definition
A hybrid custody model combining a ‘hot’ wallet for daily transactions and a ‘cold’ wallet for long‑term storage, enabling both convenience and security.
Key Points Intro
Hot‑cold wallets balance accessibility for spending with protection for reserves.
Key Points

Hot wallet: Connected, signs small transactions quickly.

Cold wallet: Air‑gapped, holds bulk assets offline.

Threshold transfers: Moves funds between hot and cold by policy.

Emergency recovery: Cold backup secures hot wallet seed.

Example
An exchange keeps 5% of its reserves in a hot wallet for withdrawals and the remaining 95% in cold multisig vaults.
Technical Deep Dive
Implements automated vault contracts: cold wallet multisig requires M-of-N approvals, hot wallet signs up to daily limit. Monitoring scripts trigger replenishment when hot balance falls below threshold.
Security Warning
If hot wallet is compromised, only limited funds are at risk; cold wallet seed must remain secure.
Caveat
Operational complexity; requires robust processes for fund transfers and recovery.
Related Terms
Hardware Wallet
Seed Phrase

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