What Are the Key Security Risks Associated with Holding Cryptocurrency in a Hot Wallet?

Hot wallets are connected to the internet, making them vulnerable to online attacks and hacking attempts. Private keys stored on the device can be compromised by malware or phishing scams.

If the exchange or service hosting the hot wallet is breached, all user funds are at risk. Loss of the device or its credentials can lead to irreversible loss of funds if no backup exists.

This convenience comes with a substantial trade-off in security.