What is a Crypto Hardware Wallet?
Unlike software wallets, which are vulnerable to security holes and hackers, offline hardware wallets were developed so that you no longer have to trust software on your computer to hold your private keys. Hardware wallets store your private keys on a physical device with specialized firmware that prevents your private keys from being accessed.
Your computer communicates with the hardware wallet, sending Bitcoin transactions to the device to be signed and returned to your computer’s assigned transactions. This way, your private keys never exist on your computer and are immune to many viruses.
Hardware Wallet Pros
The following list provides a summary of the pros of hardware wallets in comparison to software wallets:
- Security: To date, hardware wallets are the most secure way to store your private keys because they are not susceptible to viruses.
- Self-Reliance: Owning a hardware wallet allows you to be more self-reliant when protecting your Bitcoin.
- Physical Size: Because a hardware wallet is smaller than a computer, storing your private keys on a hardware wallet makes it easier to transport your Bitcoin when needed.
Hardware Wallet Cons:
On the other hand, here are some of the cons of hardware wallets compared to software wallets:
- User Experience: The user experience of hardware wallets is typically worse than software wallets. It may take some time to figure out how your hardware wallet works, and you will always need the extra step of retrieving and connecting your hardware wallet.
- Upfront Cost: Hardware wallets are more expensive than software wallets, and this upfront cost may not seem worthwhile if you are planning to buy and sell your Bitcoin quickly.
- Location: You need to be in the exact location as your hardware wallet to access your Bitcoin, which means you might not be able to use your Bitcoin when you want (or need) to.
How a Hardware Wallet Protects Your Bitcoin
Some viruses target Bitcoin’s private keys by recognizing them and sending them to hackers. These viruses have been around for many years, and they are getting more sophisticated over time. By design, hardware Bitcoin wallets prevent your private keys from ever leaving the device, making them a great defense against this attack.
Using a hardware wallet can also provide peace of mind to the user. Trying to manage private keys, software wallets, and other Bitcoin-related programs can be stressful, all while trying to ensure your computer stays very secure. With a hardware wallet, you can be more assured that your Bitcoin won’t unintentionally move. It can be hard to trust your ability to secure an intangible, internet-connected software wallet, but securing a physical offline hardware wallet provides another level of confidence in your method of crypto storage.
Planning for the Long Term
Even if you don’t own a lot of Bitcoin, it can be a good idea to store it in a hardware wallet. It might seem too expensive to buy a $150 hardware wallet to protect $500 worth of Bitcoin, but you need to factor in the possibility that the value of the Bitcoin can increase very quickly.
In the past, $500 worth of bitcoin has turned into $5000 in months. Check out why we recommend holding Bitcoin for the long term here. Another benefit of using a Bitcoin wallet is that it teaches users to be self-reliant regarding crypto storage. Bitcoin was invented as a peer-to-peer currency that didn’t require third-party middlemen like governments, banks, or other institutions. When you use a hardware wallet, you are effectively becoming your bank. It’s not necessarily for everyone, but knowing you have complete control over your crypto assets can be comforting.
Where Can I Buy a Hardware Wallet?
You can buy a hardware wallet in many places, including standard online shops like Amazon. However, we recommend buying directly from the manufacturer to prevent middlemen from interfering with the device after it has been produced.
If you plan to buy a hardware wallet that will only be used for storing Bitcoin, we like the ColdCard hardware wallet made by Coinkite. Otherwise, the Ledger Nano X is a good option if you expect to store multiple cryptocurrencies. There are several reputable brands when it comes to crypto wallets, including Trezor, KeepKey, Ellipal, and the Ledger mentioned above.
We’re referring to BTC in this article, but it’s also worth noting that hardware wallets work for all major altcoins, including Ethereum and Litecoin.
What if I Lose My Hardware Wallet or it Breaks?
Interestingly, all hope is not lost if you somehow misplace your hardware wallet or it gets accidentally destroyed.
All hardware wallets come with seed recovery phrases (sometimes called “paper wallets.” The recovery seed will let you recover your private keys even if your physical device is MIA. That should provide users with plenty of peace of mind.
You should know, however, that you must keep your recovery phrase in a safe location. If someone manages to steal your recovery phrase they might be able to steal all your BTC. Many crypto users prefer to keep their cold wallets and recovery phrases in separate locations in case one is accidentally destroyed or otherwise compromised.
Can’t I Leave My Bitcoin on an Exchange?
You can leave your crypto on an exchange, and that’s absolutely what a large number of crypto users do. It’s widespread for crypto traders who need their crypto online to swap it quickly between digital assets.
The issue is that when you leave your crypto on an exchange, you don’t have access to your private keys, which means the exchange could technically get hacked or go bankrupt, and you wouldn’t have a lot of recourse.
Of course, some people don’t have the technical ability to keep their crypto on a physical hardware device and prefer to have exchanges take custody. If you decide to take that approach, you must use a reputable exchange such as Coinbase, Kraken, or Binance.
Hardware Wallets vs. Software Wallets
So, hardware wallets are better in every way than software wallets, correct?
It’s not so simple. The best crypto software wallets or apps make it incredibly easy to transfer crypto and offer features such as staking to earn passive income.
Therefore, keeping a small amount of crypto in a wallet or exchange if you plan on transferring it frequently is not a bad idea.
You can even combine a hardware wallet with excellent crypto software like Exodus to benefit from the heightened security while still getting the slick software provided by Exodus.
Conclusion: Hardware Wallets Offer the Highest Level of Security
While you are not required to store your Bitcoin on a hardware wallet, we highly recommend it. Even for small amounts, hardware wallets are a good investment because they protect your private keys and give you peace of mind, which is impossible when using software wallets.
You certainly do not want to be caught in a situation where the price of bitcoin increases rapidly, and you are left with a large amount of bitcoin stored insecurely.
Our Favorite Hardware Wallet: Ledger Nano X
The Ledger Nano X is one of the best cryptocurrency wallets in the world. It is compatible with Metamask, Phantom, Kepler, and more software wallets. It also supports hundreds of different cryptocurrencies.
Unfortunately, it has a relatively high cost, over $100, but if you’re securing thousands of dollars worth of crypto, it doesn’t seem that bad.
