- >Ask CryptoVantage: Do I Really Need a Hardware Wallet to Store Bitcoin?
Ask CryptoVantage: Do I Really Need a Hardware Wallet to Store Bitcoin?
You do not need to own a hardware wallet in order to buy, store, or send bitcoin. But hardware wallets can significantly improve security by reducing the risk of your bitcoin being stolen. This article will provide you with a basic technical understanding of how hardware wallets protect your coins. We also list some of the trade-offs between hardware and software wallets to help you decide whether owning a hardware wallet is the right choice for you.
Billy Garrison | Oct 14, 2020
What is a Hardware Wallet?
Unlike software wallets, which are vulnerable to security holes and hackers, 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 then returned to your computer as signed transactions. In this way, your private keys never exist on your computer and are immune to many types of viruses.
The following list provides a summary of the pros and cons of hardware wallets in comparison to software wallets.
Hardware Wallet Pros:
- 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 it comes to 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:
- 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 same location as your hardware wallet in order 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
There are viruses that target bitcoin private keys by recognizing the keys and sending them to hackers. These viruses have been around for many years and they are getting more sophisticated through time. By design, hardware wallets prevent your private keys from ever leaving the device, making them a great defense against this type of attack.
Using a hardware wallet can also provide peace of mind to the user. It can be stressful trying to manage private keys, software wallets, and other bitcoin-related programs, 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 hardware wallet is a much more familiar experience.
Planning for the Long Term
Even if you don’t own a lot of bitcoin, it can be a good idea to store it on 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 a matter of months. Check out why we recommend holding bitcoin for the long term here.
Where Can I Buy a Hardware Wallet?
There are many places where you can buy a hardware wallet, including common online shops such as 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, if you expect to be storing multiple cryptocurrencies then the Ledger Nano X is a good option.
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 that is not possible 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.