Cryptocurrency is just like fiat currency, it needs somewhere to be safely stored. If you want to sell, buy and store your coins and digital assets like NFTs, a crypto wallet is a must. Crypto wallets store the private keys of your digital assets and they are considered safer than cryptocurrency exchange platforms. However, not all crypto wallets are the same. Hardware wallets and software wallets are the two most common types of crypto wallets. Both defer in utility features and security measures. The debate of hardware vs. software wallets is a hot topic that raises the question: Which one is better?
Well, stick around because we have a comprehensive guide that will cover the pros and cons of hardware and software wallets!
What is a Crypto Wallet?
First, what is a crypto wallet in the first place? A Crypto wallet is a safe and accessible way to access your digital asset. The crypto wallet safe keeps your private keys and allows you to send and receive cryptocurrencies like Bitcoin and Ethereum. To clear up any confusion, however, crypto wallets don’t actually store your crypto. Your cryptocurrencies are stored on the blockchain, the decentralized ledger, and to access the assets you need a private key. The private keys act as proof that you indeed own the crypto that lives on the blockchain. That’s why it’s essential to keep a wallet that stores your private keys, or else your money will be inaccessible.
Crypto wallets come in software and hardware format, and understanding the difference between these versions will help you choose the best one for you. So let the hardware vs. software wallet war begin!
A software wallet, as the name suggests, is a digital wallet that comes in the form of a desktop extension or a mobile application. This type of wallet is typically free and very accessible, as you can always access your digital assets as long as you are connected to the internet. This comes at the price of being always vulnerable to any attack or hack. However, some developers are working on the security strengthening of these software wallets. For example, a popular software wallet, Trust, incorporates PIN codes, biometric scanning, and recovery seed phrases to recover private keys. Software wallets also come in three types, online wallets, desktop wallets, and mobile wallets.
Online wallets are web-based wallets that can be accessed through web browsers. Most of these wallets are custodial, meaning that it’s controlled by a third party. Therefore, the platform that provides an online wallet, like Binance or Coinbase, owns the private keys to your wallet. This is the least secure type of wallet since you are trusting the middleman with your private key to your assets. There is no way to tell if the platform providing the wallet will shut down any minute, meaning you could lose your assets depending on the website’s status.
However, there’s a small benefit this type of wallet can provide. That is if you forget your password or private keys, you can easily restore them.
Unlike online wallets, desktop wallets are non-custodial. Meaning, you are the sole owner of your private keys with no intermediaries. Desktop wallets are apps that could be downloaded on your computer like Metamask, Coinbase Wallet, and Rainbow Wallet. This type of wallet is more secure than online wallets since you are the owner of the private key. However, since you are the only one responsible for it, if you lose the private key there’s no way to recover it.
Just like desktop wallets, but on your mobile! However, wallet apps are much more convenient since the wallet is literally in your pocket. Mobile wallets also have better biometric protection since it’s easy to add fave and fingerprint recognition on mobile devices. Metamask, Coinbase Wallet, and Trust Wallet support mobile applications. However, even though it’s much easier to access, mobile wallets bring new threats: application malware and the fact that your phone is more prone to be stolen.
Software Wallets Criteria
So how do you choose the best software wallet for your digital assets? Well, it could depend on what you’re looking for. Things like:
- Compatibility: The first thing to look out for is whether a wallet is compatible with the blockchain you want. Not all software wallets support all blockchains. However, some wallets support multiple blockchains like Trust Wallet. It is best to learn about each wallet and understand what blockchain it supports.
- Security: After you’ve settled on a wallet that supports the blockchain you want, the next important criterion to consider is security. You should look for software wallets that provide extra security measures like recovery phrases, biometric recognition, and two-factor authentication (2FA).
- Reputation: It is best not to opt for shady software wallets that nobody knows about. It is best practice to choose a reputable wallet like Metamask or Coinbase.
Software Wallets Examples
Metamask is one of the most popular software wallets for its easy setup and dApps navigation. However, Metamask only supports blockchains that are compatible with the Ethereum Virtual Machine such as Ethereum, Polygon, Avalanche, and more. The accessibility of Metamask is pretty easy since it employs brower-extension and mobile apps that allow you to manage Ethereum-based crypto and NFTs.
Trust Wallet won many users over its compatibility with both Bitcoin and Ethereum networks. It even supports 65 blockchains!! This wallet also has a clear focus on security since it incorporates PIN codes and biometric scanning. It is also free to download, easy to use, and available on both browser extensions and mobile applications.
A hardware wallet is a physical storage of your private keys that is completely offline. Since this type of wallet is offline, it is extremely secure and difficult to hack. Even if the hardware wallet gets stolen, some popular wallet brands like Ledger use enhanced security technology that protects against any physical attacks like power glitching and such. Some hardware wallets even use technology like the ones used in bank cards and passports for extra security. Although seemingly the perfect type of crypto wallet, hardware wallets are very expensive and hard to maintain.
Hardware Wallets Criteria
Just like software wallets, hardware wallets can comply with certain criteria that make one brand of wallet better than the other. These criteria are:
- Price: The first thing to keep in mind is that hardware wallets are expensive. Unlike their digital counterparts, which are mostly free to use, hardware wallets can range from $50 to $300! If your investments are way bigger than the price of a hardware wallet, it may be better to pay the extra cash for extra security.
- Reputation: You should also try to find hardware wallets that are reputable such as Ledger and Trezor. Dodgy wallets might contain malware that steals your assets.
Hardware Wallets Examples
Ledger is one of the most popular hardware wallets in the crypto world. It is the most secure and reputable wallet that stores both cryptocurrency and NFTs with over 5000 kinds of crypto coins. There are two types of Ledger wallets: The Ledger Nano X ($149) and the Ledger Nano S Plus ($79). Ledger also recently launched a new wallet, Ledger Stax, to store NFTs.
Just like Ledger, Trezor is also a reputable hardware wallet that is capable of storing crypto and NFTs in a friendly user interface. Trezor offers the Trezor Model One ($67) and the Trezor Model T ($213).
Hardware vs. Software Wallets: Comparison
Okay, after we discussed the features of each type of crypto wallet, the ultimate question is: Which one is better? Below you will find the pros and cons for each type of wallet to answer the hardware vs. software debacle.
- Security: Hardware wallets are the most secure because they are disconnected from the internet which makes it very difficult to hack.
- Portability: You can take the hardware wallet wherever you go, and it is always in sight so you can make sure that your digital belongings are safe and sound.
- Compatibility: Hardware wallets are compatible with different blockchains.
- Expensive: Hardware wallets are typically expensive to buy. It will cost up to $300 for a reputable device.
- Maintenance: Physical wallets are easily stolen or lost. They could also be prone to physical damage. Which makes it hard to retrieve your digital assets.
- Convenient: Easy to set up and use since it can be in your pocket as a mobile app. Which makes the wallet easily accessible and the best choice for beginners in the crypto world.
- Inexpensive: Most software wallets are completely free to use, unlike their physical counterpart.
- Flexible: Easy storage of multiple cryptos in one wallet, which saves the time of switching between different wallets.
- Security: Since software wallets are always connected to the internet, they are prone to malicious attacks by hackers.
- Dependency: In custodial wallets, you have to depend on third parties to safeguard your digital assets. In non-custodial wallets, you have to depend on yourself not to lose the private key or password that hinders you from accessing your assets.
Hardware vs. Software Wallets: Verdict
It is clear that a hardware wallet is the best option if you want the ultimate security of your digital assets. If you are a long-staying crypto individual with a lot of digital assets in need of storage, it is best to invest in a $300 hardware wallet that will ensure the safety of your crypto and NFTs. It may be even better to have two versions, software and hardware wallets. A hardware wallet to act as an account for long-term assets. And a software wallet that will act as cash for day-to-day transactions.
However, if you are new to the crypto scene, it is advisable to start with software wallets to avoid expenses. Also, hardware wallets are a bit tricky to set up as a beginner.