A cryptocurrency wallet is one of the most popular methods of crypto storage. And, within this category, there are two primary kinds of wallets: hardware and software wallets. How are these two types of crypto wallets unique from each other? And which one is best for an ordinary user – or for a long-term investor?
Crypto Wallet: Meaning
We’ll present you with a brief definition, so you can easily understand the differences.
A crypto wallet is represented by a device or program in which private and public keys of a cryptocurrency owner are stored. Crypto wallets enable the storing, sending, and receiving of cryptocurrencies.
- A private key is a code known only by the owner of a cryptocurrency.
- A public key is a code that is linked to the number of cryptoassets in the wallet.
The private key can unlock the user’s cryptocurrencies if it matches the public address. All the transactions are recorded on the blockchain.
Crypto Wallet: Hardware vs. Software
Hardware and software are key types of wallets. We are going to dive into how they work.
How Does a Hardware Wallet Work?
Hardware wallets are also referred to as “cold storage.” Such a wallet keeps private keys on a physical device. The device should be connected to a computer, and a passphrase must be entered to get access to funds. It prevents cold storage users from hacks, as only the one who knows the phrase can access the funds.
Hardware wallets allow restoring holdings to a new device in case of wallet loss. It’s also recommended to change hardware wallets from time to time.
How Does a Software Wallet Work?
A software wallet is a program downloaded onto a device to maintain crypto operations. A software wallet has three versions: desktop, mobile, and online.
- The mobile version is more convenient and has more benefits as it delivers the fastest access to funds. It’s downloaded as an application on your device. There are two ways to store cryptos. They can be either saved on the phone or storage servers. Upon comparing cryptocurrency software wallets vs. hardware wallets, we should understand that software wallets are more often subject to cyber attacks. Still, it’s possible to restore cryptos via a recovery phrase. This option also applies if a user forgets the password or loses the wallet.
- The desktop version is kept on a computer. Although this type is less helpful than a mobile one, it’s more used by professional traders and investors as it provides a higher degree of control.
- The online version is available from any device. You can access the funds being anywhere in the world (with an Internet connection). Nevertheless, this version hides significant pitfalls. A private key is stored online and regulated by a third party.
Due to the high risks of hacks, keeping a limited amount of funds on such a wallet is recommended.
Cryptocurrency Hardware Wallet vs. Software Wallet: Benefits and Limitations
To understand the benefits of software vs. hardware wallets, we should consider the pros and cons of both types. In this section, we will tell you what advantages and disadvantages both types of cryptocurrency wallets have.
- A higher level of security. If we compare hardware vs. software wallets, cold storage has a higher degree of safety. Cryptoassets aren’t stored online. Only an owner of the device who knows the passphrase can use cryptos. Also, only the device’s owner is responsible for the safety of the cryptocurrencies. Online hacks, regulations, or other pain points of online storage don’t make sense for hardware wallets.
- User-friendly. There is no need for specific knowledge to maintain the funds in a hardware wallet. Connect the device into a computer - enter pin - send cryptos - confirm the transaction.
- More Cryptos. Hardware wallets allow storing more cryptocurrencies. If you want to find a way to keep various crypto assets, cold storage is more helpful than a software wallet.
- Inconvenient. We all are used to doing everything online. Cold storage doesn’t provide rapid access to funds.
- Risk of fraud. Although hardware wallets are safe, the honesty of vendors is questionable. When purchasing cold storage via a low-reputable source, the seed phrase may be compromised, leading to a fund loss. Thus, you should be careful choosing between Bitcoin hardware vs. software wallets.
- Delayed supply. Such a case occurs seldom, but we should warn you. Opening an online wallet, you access its services immediately. However, when you purchase a hardware wallet, it may take months to get it, depending on the supplier. Choose the hardware wallet’s provider wisely. In this case, it’s better to choose a cryptocurrency software wallet vs. a hardware wallet.
- Always available. Why do we all like online shopping or paying for services online? Because it’s convenient. It’s also a benefit of software wallets. To access the funds, a user only needs an Internet connection. There are desktop, mobile, and online versions of software wallets. The mobile version allows QR payments in stores and cafes that accept cryptocurrencies.
- Easy-to-use. Same as hardware wallets, software ones are user-friendly. You shouldn’t be a professional crypto user to settle the software wallet. There is a wide variety of bitcoin hardware vs. software wallets.
- Security. Software wallets are less secure compared with cold storage. As they are managed online, the risks of viruses and hacking are high. Even recovering a code or a password, the user can be under threat of hacking.
- Limited Cryptos. Unfortunately, some software wallets accept only one or a few cryptocurrencies to be stored. Before choosing the software program, a user should check its capacity.
Software vs. Hardware Wallet: What Choices Do Experienced Crypto-coin Owners Make?
Crypto wallet - hardware vs. software: what should I choose? It’s a common question for crypto users. Hardware and software are both popular types of cryptocurrency wallets, which means investors use them two. The leading function of both types is to store private keys. However, it’s possible to draw a line between them regarding individual purposes. Long-term investors mostly use cold storage as it provides a higher level of security. A software wallet is more useful for beginner traders or ordinary users of cryptos who aim at storing small amounts of crypto funds.
Cryptocurrency Hardware Wallet vs. Software Wallet: Summary
Hardware vs. software wallet: what to choose? Hardware wallets are more secure. Still, they are not convenient for daily operations. That’s why these wallets are mainly used by long-term investors.
At the same time, software wallets can be more useful in daily routine as they provide rapid access to cryptos anywhere in the world if you have an Internet connection. However, their security is much lower; that’s why users store fewer funds on them.