Hot wallet
A wallet whose private keys are kept on a device connected to the internet, such as a phone app, a browser extension or an exchange's servers. It's quick to use, and anything that reaches the device can reach the keys.
“Hot” means connected. Most wallet apps on phones and computers are hot wallets: the private key sits, encrypted, on a device that’s always online, runs other apps and opens links. Exchanges keep hot wallets too, for the withdrawals they pay out every day, and many keep most of their customers’ coins in cold storage, offline.
The convenience and the risk are the same thing. Sending takes seconds because the key is right there, and for the same reason it’s within reach of malware, a fake app, a stolen password or a break-in at the company that runs the servers. Once the key is copied, the money can be moved from anywhere, and no one can reverse it.
In January 2018, attackers took 523 million NEM, worth nearly 500 million dollars at the time, from Coincheck, an exchange in Tokyo. It had kept them in a hot wallet connected to outside networks, without multisig, so one key was enough to move them all. In March 2018, Coincheck repaid its 260,000 affected customers in yen, out of its own funds, rather than in the coins they had lost.
A hot wallet suits what you’d carry in cash. For savings, a single key on a device that’s always online is a single point of failure. The guide on hardware wallets, multisig and collaborative custody compares the alternatives, and the one on losing your phone covers what happens when the device itself is gone.