If you’ve invested in cryptocurrency, you probably know that you need to keep your crypto secure to prevent hackers and cyber thieves from accessing your funds. This is where crypto wallets come in handy!
In this article, we’ll explain everything you need to know about both software and hardware wallets, including each type of wallet’s benefits and risks. Read on to find out more about what the best way is to store your crypto!
Table of Contents
Software Wallets
Software wallets work using a software program to store your cryptocurrency as files digitally. Users of software wallets are provided a private key to gain access to their wallets to trade or send transactions.
The beauty of software wallets is that they can be accessed anywhere, provided you have an internet connection and know your private key. This type of wallet is popular as it can hold multiple cryptocurrencies simultaneously, including Ethereum and Bitcoin, and they are also free.
Hardware Wallets
Unlike software wallets, hardware wallets are tangible and only work when plugged into a laptop or computer. Nothing else is stored inside a hardware wallet apart from a user’s private key. Once the device is plugged in, only then will a user be able to access their wallet.
This kind of wallet is popular among crypto users because it is extraordinarily secure and adds an extra protection layer to your account. They can be used to access a variety of currencies and can be used to sign and confirm blockchain transactions.
Benefits of Software vs. Hardware Wallets
Software wallets are free and generally more convenient to use as they only require an internet connection to work. A software wallet stored on your device is handy if you need to access your wallet when out and about.
Hardware wallets provide ultimate security for users as the private key is stored offline, preventing hackers from accessing whatever funds are there in your wallet.
Choosing Between The Two
Choosing between a hardware wallet or a software wallet for storing your crypto really comes down to your individual needs. We’ll try and provide a comprehensive look at the pros and cons of each type of storage so you can decide what makes the most sense in your situation.
Convenience
If you travel often, a software wallet may be more convenient as it is stored on your device and can be accessed easily. Hardware wallets are physical products and can easily be misplaced – mainly if you are a forgetful person!
Security
Hardware wallets offer maximum security for users as they can only be used when plugged into a device. Once unplugged, the private key cannot be accessed by anyone. Software wallets do not have this advantage, and therefore, the risk of attacks is significantly higher.
Risks With Software Wallets
Relies On Third Parties
Software wallets rely on third-party hosts to keep hold of your private key and keep it secure; this can be risky, and if exposed to an attack, your wallet may be hacked into, resulting in a loss of funds.
Security Risk
The biggest risk with software wallets is that they are not as secure as hardware wallets. If your private key(s) is accessed, then the key holder can access your wallet and process transactions and trades with all the currency stored inside.
It is recommended to store smaller amounts of cryptocurrency in a software wallet. This way, if your device is exposed to a virus or a cyber thief, the loss may not be too big of a deal.
Loss
Any information stored on a device is at risk of a potential wipeout. Therefore, users need to back up any information that is of importance. Another problem could arise if your device is lost or stolen, which gives access to thieves.
Many software wallets (and hardware wallets for that matter) include seed phrases that enable users to restore or backup wallets. Taking a note of your seed phrase is essential should you ever need to restore your software wallet.
Risks With Hardware Wallets
Generally, hardware wallets offer more security than software wallets. However, there are still risks involved, which can lead to irreversible issues.
Responsibility Lies With The User
If your hardware wallet is lost or stolen, then your funds are at risk. As discussed above, keeping a note of your seed phrase is essential for accessing your wallet in this instance. Always remember to keep the details of your seed phrase somewhere safe.
Security Issues
Hackers are becoming wiser, and one of their clever attacks is to acquire a wallet before it is shipped to the recipient. An attack like this means the security of the wallet is at risk. For this reason it’s essential that you make sure you only buy hardware wallets directly from the manufacturer’s website. For example, don’t buy them from a 3rd party reseller on Amazon!
Best Software Wallets
Let’s take a look at some of the best software wallets on the market today.
Exodus
The Exodus software wallet is ideal for new users of crypto with its easy-to-use interface. Exodus can be used on PCs and smartphones and allows users to send, receive and trade over 140 cryptocurrencies.
This leading market provider enables users to trade currency in a matter of seconds with its built-in exchange. Sensitive information such as private keys and transaction data are encrypted on Exodus, so the information is only available to the user.
Bitpay
Bitpay can be downloaded to a smartphone from the IOS app store and the Google Play store and supports an array of cryptocurrencies such as Ethereum (ETH), Bitcoin (BTC), and XRP (used on Ripple).
Bitpay offers additional services such as buying store credit which can be used at popular stores such as Nike, Pizza Hut, Starbucks, and KFC.
This is an open-source software wallet which means that the community of users supports it. Therefore contributions are made globally, and problems are resolved by majority voting.
Bitpay is an open-source wallet that means that the only person who can access funds is the user; this is a tremendous advantage for security as data can be encrypted, such as PINs and private keys.
Coinomoi
This app supports over 200 types of crypto assets and again has an easy-to-navigate interface. In the past, Coinomoi has come under numerous attacks from hackers; however, developers seem to have stopped this as of late.
The Coinomi app can be downloaded to most smartphones and, again, is ideal for crypto-newbies who may not have too many funds sitting in their wallet.
Best Hardware Wallets
Trezor Model T
Trezor is manufactured by Satoshi Labs, which was the first manufacturer of hardware wallets in the world.
This wallet supports over 1,000 cryptocurrencies, including Monero, Ripple, and Bitcoin, to name a few. The customer service is simply unmatched, with support available seven days a week.
The Trezor Model T allows users to convert crypto to fiat currency and has a built-in exchange. The two-factor authentication and password manager provide users with reliable security, and the open-source network means that only the user has access to their funds.
Ledger Nano X
The Nano X is the latest in a range of Ledger-based products, which means it has improved from the last. This wallet has built-in Bluetooth allowing users to connect to a nearby device such as a laptop or smartphone, making it convenient for a fast-paced lifestyle.
The Ledger Nano X supports over 1500 cryptocurrencies, including Litecoin, Stellar, Dash, and Ethereum Classic. It also has an automatic switch-off program. If it is left plugged in for a specific time, it will automatically switch off, making your information safe and inaccessible to others.
KeepKey
While this hardware wallet may be the cheaper option available, it still boasts quality security, and the wide LCD screen provides easy navigation for users.
The KeepKey wallet is ideal for new users as it only supports 40 cryptocurrencies. However, this is convenient for users who are just getting to grips with trading and receiving crypto assets.
The wallet itself is slightly larger than other wallets on the market, but this is down to personal preference, and for some users, the bigger the wallet, the better!
The main focus point of KeepKey is that it is secure and provides users with recovery seeds along with a PIN code which every user should find satisfactory.
Conculsion: Hardware or Software Wallet To Store Your Crypto?
When selecting a wallet to store your cryptocurrency, it is essential to think about convenience and security. If you want to store a lot of currency inside a wallet, then security will be your top priority. You don’t want your crypto stolen.
On the other hand, if you are new to using crypto, you may choose a software wallet since it’s a lot more convenient – this is a great option if you have a small amount of currency in your wallet and you want to get your feet wet in the world of crypto!
If you have significant crypto you want to store securely, we recommend you do thorough research into the different types of wallets. Whether you use a software wallet or a hardware wallet you need to make sure you can recover it, and you also need to make sure that you take precautions to prevent your crypto being stolen. If you use a software wallet, make sure you at minimum use 2-factor authentication when you login using an authenticator app. For more protection you may want an entire device that is setup just for accessing your crypto – more on that in a future article.
If you use a hardware wallet make sure you only purchase it directly from the manufacturer and that you store your recovery seed safely offline. This will allow you to recover your wallet if needed. Since you are making an offline copy, we recommend that you make more than one. Imagine if you lost one of the offline copies – you don’t want to lose all of your crypto! Don’t store your recovery seed digitally though. That defeats the purpose of the hardware wallet and makes it far less secure.