A friend texted me one day in a panic. He had lost an entire Bitcoin from a well TRUSTed(hint, hint) software wallet he had installed on his phone. It turned out to be a “glitch” in the wallet app itself. The funds were actually still safe on the blockchain but the wallet still showed a zero balance! He managed to restore access to the funds with a different wallet but not before scaring himself half to death!
Don’t be him.
Like it or not blockchain technology is here to stay, and its a very good time to solidify your long-term plan for securing your crypto and NFTs.
So, are hardware wallets worth it?
Heck, yeah! Hardware wallets are worth it in terms of both cost and security benefits. Just keep in mind that hardware wallets and software wallets each have their place in the crypto space. It is not a case of “one or the other.” It is both. However, if you expect to be invested in crypto for the long haul, buying a reliable hardware wallet like a Ledger or a Trezor will eliminate at least four vulnerabilities that all software wallets have which we’ll get into later.
The 3 Main Ways to Secure Your Crypto
Before going further, I want to briefly point out the three main ways investors secure their crypto.
1. Crypto Custodial Services- For Big Fat Whales
Typically reserved for “whales” these third-party services lock away the keys to crypto assets in highly guarded physical vaults. Some even offer insurance policies to protect the balance. These services cost quite a bit which is why larger institutional investors like hedge funds, ETFs, and billionaires tend to be their clients.
2. Hardware Wallet(AKA cold wallets)- For Long-term “HODLers”
Hardware wallets are physical devices with encrypted chips holding the keys to your crypto portfolio. Since hardware wallets are physically disconnected from the internet they are safe from hackers. The devices resemble USB sticks and must be physically connected to a device with the matching proprietary software then the device must be unlocked to make a crypto transaction. Each transaction must be verified and signed from the wallet itself by physically inputting a passcode.
3. Software Wallets(AKA Hot Wallets)-For Degenerate Alt-Coin Traders(kidding)
Software Wallets store the keys to your crypto assets in apps that run on a computer, browser extension or mobile device. Security settings vary and can often be toggled on and off according to the user’s preference. Hot wallets make blockchain transactions easier and are often more compatible with DEXes. However, since they remain online all the time, they are more prone to hacker attempts and software vulnerabilities.
|Best Use Case||Long Term Investor |
|Small cap trader, |
if lost or destroyed?
(with seed phrase)
(with seed phrase)
|Transactions||physical device and pin|
|Software Wallet on any |
device with password
(Mid to Large cap)
(large & small cap)
4 Vulnerabilities That Hardware Wallets DO NOT HAVE
1. Hardware Wallets are Offline (Cold Wallets)
This is the single biggest reason serious investors choose hardware wallets over software wallets.
Hardware wallets are physically disconnected from the internet and only briefly connected to verify transactions. This makes them almost impossible to hack. Hardware wallets like Ledger and Trezor also utilize military-grade encrypted chips so that even if you had the physical wallet in your possession you’d still be up the creek.
Software wallets, on the other hand, are always connected to the internet. Therefore these apps are exposed to a never-ending onslaught of brute force attacks, bots, and hacker attempts- all of which are seeking the proverbial “crack in the wall” through which they can manipulate the software, and steal your crypto, or scam you into losing your crypto holdings.
2. Paying for a Hardware Wallet Makes You the CLIENT not the Product
Pig 1 : Isn’t this great ? We don’t pay anything for the barn!
Pig 2 : Yeah! Even the food is free. This is awesome!
Take Away: If you are not paying for it, you are NOT the customer. You are the PRODUCT being sold.
When it comes to securing your crypto, this is a huge deal and I don’t see many people talking about this crucial aspect.
Would you trust Zuck’s Facebook with your whole crypto portfolio? Why would you trust some free app from developers with the very same revenue model as Facebook except your money is involved not just your privacy!
Never trust companies that make “free” products to have your best in mind, especially when your money is involved!
When you use “free” software wallets –you are the product. That means that when push comes to shove, you are not the priority for app developers and neither is your privacy. Their real customers (ad agencies and affiliate networks), are their number one priority and they will bend over backward to make money from them at your expense. They are monetizing you, and in some cases, the information about your crypto holdings may even be sold to ad agencies and such.
Only entrust your valuable crypto assets with well-respected products you paid for. That way, you are their primary clientele. They work for you.
3. Hardware Wallet Ecosystems Are More Stable
A huge reason why Apple products “just work” is because Apple tightly controls both the hardware and software side of their products. The result is a very stable and reliable product.
Take away: The most stable products are physically engineered and programmed from the ground up to work seamlessly.
Hardware wallets have similarly designed ecosystems. That’s what makes them stable. By comparison, Software wallets face far more compatibility challenges.
For example, have you ever had an important App break just after updating your phone’s OS?
What if the developer no longer updates your wallet app or the project fails? That is a common occurrence with plenty of app developers.
With each operating system update or app version comes a whole host of possible software vulnerabilities across many devices.
I don’t like the idea of being locked out of my crypto because my wallet app suddenly breaks. While there are ways to fix issues like this, it’s not worth the heart attack!
4. Hardware Wallets Generally Offer More Redundancy
There is nothing in an airliner that is essential to flight that is not at least triple redundant. If one system fails there are two backups.
Take away: Redundancy is key to high security.
Redundancy is absolutely critical when it comes to securing your crypto. Given the volatility of crypto markets, being unable to access your funds quickly can lead to catastrophic losses.
“Redundancy” is why I specifically chose to buy a Ledger Nano X:
- It can connect to my device via Bluetooth or USB. That is a connection redundancy in case a usb port or cable fails. (I chose the Ledger Nano X specifically because of this redundancy.)
- It can be accessed via multiple devices and computer operating systems. That is a software redundancy, in case an app or device fails.
- If lost, or destroyed I can restore the funds to a new ledger using the seed phrase. That is a fail-safe physical redundancy.
Of the above redundancies, most software wallets only share the last redundancy with hardware wallets and a few share the second one. It’s also worth noting that many hardware wallets only offer a single USB connection option. It is advisable to opt for a wallet like the Ledger Nano X which also has Bluetooth connectivity that you can turn on and off.
The Balanced Approach: Using Both Kinds of Wallets
A hardware wallet works better as a secure savings account
A software wallet works better as a checking account that you use with a debit card for day-to-day stuff.
This doesn’t need to be a question of only one kind of wallet or another, it’s about using the appropriate one for the right task.
For example, if you make regular crypto payments or trade frequently on DEXes with your mobile device then a hot wallet is best. However, if you’re working on stacking sats for the next bull run, then keep those long-term savings locked away in a hardware wallet.
Psychologically, it is easier to save when your savings are kept apart from the rest of your assets.
Hardware Wallet Top Recommendations
Ledger and Trezor are the world’s two leading hardware wallet manufacturers. Ledger is based out of France and Trezor is out of the Czech Republic.
It is highly advisable to buy hardware wallets direct from the manufacturer to avoid receiving a tampered unit or a counterfeit. This is not the kind of item to buy on Amazon.
Both brands will ship directly to you via secure tracking package services.
The Basic User: LEDGER NANO S
Cost: ~$60 at Ledger.com
The Nano S is the most affordable hardware wallet to secure your crypto. It connects to your computer or mobile device via USB-C and syncs with the Ledger Live app(Mac, Windows, iPhone, Android.) Transactions are authorized by inputting your pass with the two-button interface. Due to limited memory, you can’t put as many apps on it, but its fine if you plan to hold less than 15
Many folks buy the heavily discounted 3-pack, so they can keep a couple and put a backup in a safety deposit box.
The NFT collector: Ledger Nano S Plus
Price: ~$80 at Ledger.com
With more memory, and a larger screen the Nano S Plus is easier to navigate and more Defi and NFT friendly. You can fit up to 100 apps on this wallet allowing you to use it with a lot more crypto assets and services than the Nano S. Here’s a link that explains the range of services.
Most Versatile: Ledger Nano X
Price: ~$150 from Ledger.com
Nano X hits the sweet spot for me. It has the same large capacity and capabilities as the Nano S plus but comes with large front-facing buttons and Bluetooth connectivity which can be activated when needed. It’s not just the convenience of the wireless connectivity that makes this wallet great, it’s the redundancy of being able to access the wallet even if the USB cable or port fails.
I find USB cables unreliable.
The Professional: Trezor Model T
Price: ~$280 from Trezor.io
The Trezor Model T is a premium hardware wallet. The large color touch screen shows you the details of each authentication request so you can be sure of what you are actually signing. The Trezor Model T can also manage your digital identity and includes a password manager, support for SSH, GPG and Universal 2nd Factor(U2F) tokens so you can authenticate yourself when accessing high-security networks and services.
Unfortunately, the Trezor Model T does not have wireless connectivity.
Compared to other markets, crypto is still in its infancy. Going from thousands to millions can happen in a matter of months during a bull run. It’s worth asking yourself the question, “Do I see myself in this for the long run? If so, then it’s definitely worth establishing a longer-term high-security strategy for securing your moon bag.
In all likelihood, if you invest smartly your hardware wallet will hold millions of dollars in just a few years.
In light of that possibility, what is a hundred bucks or so to secure a future like that? I think it’s a no-brainer.