Hot Wallet

A hot wallet refers to a Bitcoin wallet that is online and connected in some way to the Internet.

Hot wallets are used to provide instantaneous payouts and withdrawals. Some also use hot wallets to refer to coins kept in an exchange where they can be taken out at any time. The analogy many people make is comparing hot wallets to cash. When you have cash, you can instantly spend it on anything you want with easy access. So also with hot wallets, the crypto funds are always available for immediate withdrawal.

Custody Wallet

A Custodial Wallet is defined as a wallet in which the private keys are held by a third party. Meaning, the third party has a full control over your funds while you only have to give permission to send or receive payments. Here’s how the custodial wallets work: A (third party in this case) asks B (users in this case) to transfer their fund on a particular address/place, but A does not receive any private key to that storage address. The third party authority, manages all the funding, with the condition that users won’t be able to perform any transaction without their involvement.

Hardware Wallet

A hardware wallet is a physical electronic device, built for the sole purpose of securing crypto coins.

The core innovation is that the hardware wallet must be connected to your computer, phone, or tablet before coins may be spent.