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In a recent response on X, Ripple CTO David Schwartz explains the concept of a warm wallet, a type of cryptocurrency wallet. Warm wallets are a lesser-known idea in the crypto space, where discussions typically revolve around cold and hot wallets. The term recently gained attention when crypto exchange Bybit explained how the recent crypto hack on its platform occurred.
On Friday, a hacker got control of one of Bybit's cold Ethereum wallets, and an estimated $1.46 billion in assets were transferred out of the wallet in a series of transactions.
Yuri MolchanBybit said in a tweet that the incident occurred when its ETH multisig cold wallet executed a transfer to its warm wallet: "Bybit detected unauthorized activity involving one of our ETH cold wallets. The incident occurred when our ETH multisig cold wallet executed a transfer to our warm wallet. Unfortunately, this transaction was manipulated through a sophisticated attack that masked the signing interface, displaying the correct address while altering the underlying smart contract logic. As a result, the attacker was able to gain control of the affected ETH cold wallet and transfer its holdings to an unidentified address."
An X user, curious about the term "warm wallet," asked what it meant. In response, Ripple CTO David Schwartz provided an explanation on warm wallets stating that "It's an intermediate between a hot wallet and a cold wallet. More secure than a hot wallet and more convenient to access than a cold wallet. Unlike a hot wallet, human intervention is supposed to be necessary to transfer from it."
Cold versus warm versus hot wallets
Cold wallets maximize security while sacrificing access speed. The private keys are stored completely offline on a device that is not connected to the internet. Each transaction must be digitally signed by a human before being recorded on the blockchain.
Tomiwabold OlajideHot wallets, on the other hand, are linked to the internet, so the private keys needed to sign transactions are always online. Transactions can be created and recorded on the blockchain automatically, eliminating the need for human intervention.
Warm wallets combine the transaction speed of hot wallets with a layer of protection akin to cold wallets. The keys are kept online, and transactions can be made automatically, but human interaction is required to sign the transaction and send it to the blockchain.
As with Bybit, some digital asset custody providers use a combination of storage methods, keeping the majority of funds in cold storage while making a smaller portion available immediately via an online hot or warm wallet.
Dan Burgin
Vladislav Sopov