A Hosted Wallet is an online service where a third party, such as a cryptocurrency exchange, stores a user’s cryptocurrencies. These wallets are account-based software programs designed for the storage, sending, and receiving of digital currencies. In this arrangement, the third-party service provider manages the cryptographic keys associated with the wallet, meaning users do not have direct access to these keys and, consequently, do not have complete control over their funds.
The term “hosted” implies that the digital assets are kept by an entity separate from the user, similar to how banks store funds in checking or savings accounts. Users of hosted wallets rely on the service provider to manage their assets, execute transactions, and ensure security. While this setup can offer convenience and ease of use, especially for beginners in the cryptocurrency space, it does shift the control and responsibility of managing the keys to the third-party provider. As a result, users of hosted wallets must place significant trust in these providers to securely handle their digital assets.