Software Crypto Wallets vs. Hardware Crypto Wallets: Which is Better?

Did you know that over $3.8 billion worth of cryptocurrency was stolen in 2022 alone? Cryptocurrency theft is rampant, and where you store your digital assets plays a critical role in how secure they are.

The "best" crypto wallet isn't a one-size-fits-all answer.

The ideal choice depends on your individual needs and priorities. Do you value lightning-fast transactions and ease of use, even with a slightly higher security risk? Or, is ironclad security your top priority, even if it requires a bit more setup?

In cryptocurrency, you are your own bank. There's no FDIC insurance (or similar) to bail you out if your funds vanish. This puts the responsibility of safeguarding your crypto squarely on your shoulders.

The first major decision you need to make is choosing between the always-online convenience of a software wallet or the offline security of a hardware wallet. This choice has the potential to make or break your entire cryptocurrency experience.

What is a Software Crypto Wallet?

A crypto software wallet, similar to a mobile banking app for your cryptocurrency, is a program you install on your device that allows you to manage your crypto holdings on the blockchain.

It doesn't store the actual cryptocurrency itself but holds the keys that grant you access to it on the network.

This lets you view your balance, send and receive crypto, and even interact with decentralized applications.

Software wallets are known for their convenience and ease of use, making them a popular choice for beginners and experienced crypto users alike.

Here's a breakdown of their user-friendly features:

• Accessibility: Software wallets can be accessed from various devices like desktops, laptops, smartphones, or tablets. This allows you to manage your cryptocurrency on the go, anytime, anywhere.

• Simple Setup: Setting up a software wallet is generally a straightforward process. It often involves downloading an app or creating an account with a web-based service. The initial steps are usually guided and user-friendly.

• Intuitive Interface: Most software wallets have user-friendly interfaces that are easy to navigate. They often have clear buttons, menus, and helpful guides to understand the functionalities.

• Integrated Features: Many software wallets offer built-in features like real-time price charts, transaction history, and the ability to buy and sell crypto directly within the app. This eliminates the need for multiple platforms and streamlines your crypto experience.

Types of Software Crypto Wallet

There are three main types of software crypto wallets:

1. Mobile wallets
2. Desktop wallets
3. Web wallets

Each has its own advantages and disadvantages. Let’s check them out

1. Mobile Wallets

Mobile wallets are smartphone apps designed to store and manage your cryptocurrency holdings. They often integrate with QR code scanning for convenient in-store payments and other similar use cases.

They are ultra-portable, allowing you to manage your crypto and make transactions on the go. Many offer user-friendly interfaces.

Unfortunately, they are more susceptible to malware and hacking if your phone is compromised. Prone to loss or theft of the device itself.

2. Desktop Wallets

Desktop wallets are software installed directly onto your computer. They can offer increased security options compared to mobile wallets.

They offer greater user control over security settings and features compared to web wallets. Less vulnerable to online attacks when your computer is offline.

However, desktop wallets are tied to a single computer; if the device is damaged or stolen, your wallet accessibility is compromised. Still susceptible to malware if your computer is infected.

3. Web Wallets

Web wallets are accessible through your web browser. Often integrated with cryptocurrency exchanges for quick trading functionality.

Offering incredible convenience, they are accessible from any device with an internet connection. Don't require installing any local software.

However, they are the most vulnerable type of software wallet. Your funds are stored on servers controlled by a third party, making them prime targets for hackers.

Benefits of Software Crypto Wallet

Software crypto wallets offer several advantages over other methods of holding cryptocurrency:

• Convenience: They are generally very easy to set up and use, often with mobile apps available for sending and receiving crypto on the go. Some even allow easy integration with crypto exchanges for trading or buying more crypto.

• Accessibility: Software wallets are free or very inexpensive to use, making them a good option for new crypto users or those on a tight budget.

• Multiple Currency Support: Many software wallets can store and manage a variety of different cryptocurrencies, all in one place.

Disadvantages of Software Crypto Wallet

While software wallets provide convenience for crypto users, there are some downsides to consider:

• Not Air gapped: This is a major concern. Software wallets, also known as hot wallets, are constantly connected to the internet, which makes them more susceptible to hacking attempts, malware, and phishing attacks. If a hacker gains access to your device or your private key, they can steal your crypto.

• Vulnerability to Device Issues: If your device with the software wallet is lost, stolen, damaged, or wiped clean, you could lose access to your crypto if you haven't properly backed up your private key.

• Limited Control (compared to hardware wallets): While you do hold the private keys with a software wallet, some providers might have restrictions on daily transaction limits or other controls.

• Not Ideal for Large Amounts: Because of the security risks, software wallets are generally not recommended for storing large amounts of cryptocurrency.

Security Features of Software Crypto Wallet

Software wallets, while convenient, require a vigilant approach to security. Here are some common security features offered by reputable software crypto wallets:

• Encryption: Most reputed software crypto wallets encrypt your private key with a powerful algorithm, like AES-256, making it extremely difficult to crack even if a hacker gains access to your device.

• Multi-Factor Authentication (MFA): MFA adds an extra layer of protection by requiring a second verification step beyond your password, such as a code from your phone or a fingerprint scan.

• PIN Lock: Many mobile wallets offer PIN lock functionality, requiring a PIN to access the app, providing an additional hurdle for unauthorized access.

• Secure Enclave Technology: Some mobile wallets like Alpha Wallet leverage a secure enclave within the device's processor for added protection of your private key. This isolated environment helps keep your key safe from malware or other threats on the main operating system.

3 Software Crypto Wallets to Explore

Choosing a software crypto wallet depends on your needs and priorities. Here are three popular options to explore:

1. MetaMask

MetaMask is a popular choice for beginners and experienced users alike. It's a versatile wallet that supports a wide range of cryptocurrencies, including Ethereum (ETH), ERC-20 tokens, and Binance Smart Chain (BNB) tokens. It is best for Ethereum and associated DeFi. MetaMask also has a built-in web3 browser, which allows you to interact with dApps directly from the wallet.

2. Trust Wallet

Trust Wallet is a mobile wallet that is well-suited for users who want a convenient way to store and manage their cryptocurrencies on the go.

Trust Wallet supports a wide range of cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), and ERC-20 tokens. It also has a built-in exchange that allows you to buy and sell cryptocurrencies directly within the wallet.

3. TotalSig

TotalSig is a multichain multi-sig crypto wallet that goes beyond the usual offerings. It supports major blockchains like Bitcoin, Ethereum, Binance Smart Chain, and more.

TotalSig's focus lies in providing secure asset management through collaborative control. Ideal for teams and organizations, its multi-signature authorization makes transactions contingent on approvals from multiple authorized parties, significantly reducing the risk of unauthorized access or fraudulent activity.

The wallet prioritizes user-friendliness and cost-efficiency, making it suitable for both crypto novices and seasoned veterans.

What is a Hardware Crypto Wallet?

For maximum security of your cryptocurrency, consider a hardware wallet. Unlike software wallets that live on your computer or phone, hardware wallets are physical devices, often resembling USB drives. These keep your private keys offline, eliminating the risk of online hacks.

While less convenient than software wallets for everyday use due to the need to connect them to your device for transactions, hardware wallets are the ultimate solution for serious crypto holders who prioritize security.

A durable hardware wallet goes beyond just storing your crypto. It's built tough, with a strong casing of stainless steel or reinforced plastic to shrug off everyday wear and tear.

If you are purchasing one, look for established brands known for their secure products, as they prioritize quality materials and construction.

Types of Hardware Crypto Wallet

There are two main types of hardware crypto wallets:

1. Air gapped hardware wallets
2. Wireless-enabled hardware wallets

1. Air Gapped Hardware Wallets

Air-gapped hardware wallets offer the ultimate level of security by completely isolating themselves from the internet.

While traditionally defined as completely isolated from the internet, the category of air-gapped hardware wallets has evolved. These wallets now encompass two main approaches:

• Fully air gapped: These wallets, like the Ellipal Titan, maintain a complete physical separation from any network connection. They rely on methods like QR codes or removable storage to transfer transaction data for offline signing.
• Partially air gapped: Wallets like the Ledger Nano S Plus utilize a USB connection for limited functionality. However, they crucially maintain an air gap for the most critical aspect — private key storage. Transaction data is transferred unsigned via USB, and the signing process happens entirely within the secure environment of the wallet.

2. Wireless-Enabled Hardware Wallets

Wireless-enabled hardware wallets introduce Bluetooth or NFC capabilities for enhanced user experience. This allows for easy pairing with mobile devices and can even enable features like contactless payments.

Importantly, even with this wireless capability, private keys remain protected within the wallet itself. These wallets suit users desiring a strong level of security along with slightly more streamlined usability.

Benefits of Hardware Crypto Wallets

Hardware crypto wallets offer several advantages over other storage methods for your cryptocurrency holdings. Here are some of the key benefits:

• Enhanced Security: Unlike software wallets that reside on your computer or phone, hardware wallets store your private keys offline in a secure chip. This offline storage makes them much less susceptible to hacking, malware, and other online threats. Since your private keys are never exposed to the internet, they are far more difficult to steal.

• Increased Control: With a hardware wallet, you retain complete control over your private keys. This means you are not reliant on a third-party service to secure your funds. This can be a major benefit for users who prioritize control over their finances.

• Transaction Verification: Hardware wallets typically require physical confirmation from the device itself before a transaction can be completed. This extra layer of security helps to prevent unauthorized transactions.

• Recovery Options: Most hardware wallets come with a recovery seed phrase. This seed phrase allows you to restore your private keys and access your funds if you lose your hardware wallet.

Disadvantages of Hardware Crypto Wallet

While hardware wallets boast top-notch security for your crypto, they do come with some drawbacks to consider. Here are some of the disadvantages to be aware of:

• Cost: Hardware wallets are typically more expensive than software wallets. They can range in price from around $40 to $200 or more, depending on the features and brand.

• Complexity: Setting up and using a hardware wallet can involve more steps compared to a software wallet. This can be a barrier for new crypto users who might find the process intimidating.

• Single Point of Failure: While the private keys are stored securely offline, the hardware device itself becomes a single point of failure. If the device is damaged, lost, or stolen, you'll need your recovery phrase to regain access to your funds.

• Limited Functionality: Hardware wallets are primarily designed for secure storage. They may not offer all the features of a software wallet, such as integrated exchange functionality or advanced trading tools.

Backup and Recovery Options in Hardware Wallets

Hardware wallets prioritize security by storing your private keys offline, away from internet vulnerabilities. But what if your hardware wallet itself gets damaged, lost, or stolen? That's where backup and recovery come in. Here's what you need to know:

• Recovery Seed Phrase: This is the golden ticket to your crypto. It's a series of 12-24 words generated during hardware wallet setup. Write it down, ideally, on multiple copies of paper or metal seed plates. Store these backups in separate, safe locations, away from fire and water damage.

• Shamir Backup: Some advanced hardware wallets offer Shamir Backup. This allows you to split your recovery seed phrase into multiple shares. You only need a certain number of these shares (e.g., 3 out of 5) to recover your wallet, even if you lose some backups.

• Second Hardware Wallet: A few users store a backup copy of their main wallet on a separate hardware wallet. This eliminates the need for physical backups on paper or metal but requires careful storage of the secondary device.

Security Measures in Hardware Wallets

Hardware wallets pack a punch when it comes to securing your cryptocurrency. Here's how they fortify your digital assets:

• Offline Storage: Unlike software wallets connected to the internet, hardware wallets store your private keys offline on a secure chip. This significantly reduces the risk of online attacks like malware or hacking, as your private keys are never exposed to the web.
• Transaction Verification: Hardware wallets often require physical confirmation on the device itself before a transaction is complete. This double-check helps prevent accidental or unauthorized transfers.
• Self-Custody: With hardware wallets, you hold the keys (literally, the recovery seed phrase) to your cryptocurrency. This empowers you to manage your own funds without relying on a third-party service.

3 Hardware Crypto Wallets to Explore

1. Ledger Nano S Plus

The Ledger Nano S Plus is a time-tested and reliable option.

This affordable and durable hardware wallet supports a multitude of cryptocurrencies, making it adaptable for a diverse portfolio.

Ledger's focus on security with their Secure Element chip and user-controlled private keys makes it a popular choice for users who prioritize safeguarding their assets.

2. Tangem

Tangem stands out with its unique credit card-like form factor. This emphasis on portability is ideal for those who frequently transact on the go.

Tangem boasts high security standards (EAL6+ certified) and supports a wide range of cryptocurrencies.

For users who value both convenience and security, Tangem is a solid choice.

3. NGRAVE ZERO

Touted as "the coldest wallet" because of its EAL7 rating, the NGRAVE ZERO is designed with ultimate security in mind. It operates entirely offline (air-gapped), minimizing the risk of hacks.

The NGRAVE ZERO features a high-resolution touchscreen and its premium materials and construction reflect its commitment to top-tier protection.

This is the wallet for users who demand an uncompromising level of security and are willing to invest in it.

Head-to-Head Comparison: Software vs. Hardware Crypto Wallets

Here is a summarized comparison of software and hardware cryptocurrency wallets.

Factors to Consider When Choosing a Crypto Wallet

When considering a cryptocurrency wallet, there are several factors to keep in mind to ensure security, convenience, and compatibility with your needs:

• Security: Look for wallets that offer strong encryption, two-factor authentication, and multi-signature features. Also, consider whether the wallet is open-source and has undergone thorough security audits.

• Private Keys Control: Ensure that you have full control over your private keys. A wallet where you control your keys directly provides better security than one where a third party manages them.

• Device Compatibility: Consider whether you want a wallet that's compatible with desktop computers, mobile devices, or both. Some wallets are available across multiple platforms, while others are specific to one.
• EAL Rating: Hardware wallets often come with an Evaluation Assurance Level (EAL) rating. This standardized rating indicates the level of security evaluation the device has undergone. Higher EAL levels (such as EAL5+ or EAL6+) denote more rigorous testing and verification, leading to greater confidence in the wallet's security.

How to Use Software and Hardware Wallets Together?

Combining the strengths of software and hardware wallets offers a smart way to manage your cryptocurrency holdings.

Think of your hardware wallet as the impenetrable fortress locking away the bulk of your assets, while your software wallet acts as your on-the-go solution for smaller transactions and everyday crypto use.

To get started, you'll need both a reputable hardware wallet (like Ledger or Trezor) and a compatible software wallet like Bloom, BitPay, etc.).

The first step is the setup — initializing your hardware wallet and carefully storing your recovery seed phrase, and then installing and setting up your chosen software wallet.

Once ready, here's how to make this combo work for you:

• Transferring Funds to Your Hardware Wallet:

• Connect your hardware wallet to your device and open its corresponding software application.
• Generate a new receiving address on your hardware wallet.
• From your software wallet, initiate a transfer to this address, sending the amount of cryptocurrency you want to store long-term.

• Day-to-Day Use with Your Software Wallet: Keep a smaller amount of cryptocurrency in your software wallet for payments, trading, or engaging with dApps. Replenish it from your hardware wallet as needed.

Conclusion

There's no single "better" option when it comes to software and hardware wallets. The ideal choice depends on your individual needs and priorities.

The best way to manage your cryptocurrency is to embrace a multi-pronged approach, utilizing both software and hardware wallets. Think of this as your crypto asset security and convenience toolkit.

Your hardware wallet is like a well-guarded vault for the majority of your holdings, while your software wallet acts as your readily-accessible spending account.

Sometimes, you might want to top up your crypto wallet directly from the wallet’s interface — that’s when you will need a reliable fiat-to-crypto on-ramp. Many major wallet providers (including Ledger, Trust Wallet, Phantom, and MetaMask) have Transak integrated in them. Once you are a registered user on Transak, you can purchase cryptocurrency using fiat directly from within the wallet with the same account.

Want to learn more about cryptocurrencies and web3? Head over to transak.com/blog.