Hardware Wallet vs Software Wallet

Hardware Wallet vs Software Wallet

If you’re looking to purchase and trade cryptocurrencies, one of the first things you would need is a cryptocurrency wallet. Cryptocurrency wallets enable you to send, receive, and store your crypto assets. Several crypto wallets are available in the market, giving users a broad choice depending on their preferences. These can be broadly divided into hardware wallets and software wallets, each of which comes with a specific set of features and security measures.

This article will help you better understand cryptocurrency wallets and explore the key differences between a hardware wallet and a software wallet, their pros and cons, which can be used to determine which is right for you. 

What Is A Cryptocurrency Wallet? 

Before moving on, it is essential to understand a cryptocurrency wallet. Contrary to popular belief, a cryptocurrency wallet does not actually hold your crypto. Your assets are safely tucked away on the blockchain. Instead, crypto wallets allow you to hold your private keys, which give you access to your crypto assets and allow you to send and receive cryptocurrencies. These wallets come in different shapes and forms and can broadly be divided into two categories, software wallets and hardware wallets.

Software wallets maintain an active connection to the internet and offer greater convenience compared to hardware wallets because transactions can be completed relatively quickly. However, the downside is a reduced level of security. On the other hand, hardware wallets are far more secure and ideal for users who wish to hodl their crypto without fretting about it being stolen. Let’s take a closer look at both. 

What Is A Software Wallet? 

A software wallet is a digital application that allows you to store crypto. These wallets are distinguished by their own set of unique features and characteristics and come with a set of supported cryptocurrencies and software platforms such as Windows, Mac, and other operating systems. They are almost always connected to the internet, making them more susceptible to hackers. Despite the compromise on security, software wallets offer a high level of convenience, making them quite popular among crypto enthusiasts and beginners. 

Wallet developers have gone to great lengths to create a user-friendly wallet that offers the highest level of security possible. Software wallets come with a host of biometric features combined with 2FA (two-factor authentication) to keep your assets secure. These wallets primarily come in three variations, Desktop wallets, mobile wallets, exchange wallets, and online or web wallets. 

Desktop Wallets 

Desktop wallets are computer programs that can be downloaded and installed on your computer, with the private keys securely stored on the hard drive or Solid State Drive. These are perfect for users who wish to trade with small amounts of crypto. 

Mobile Wallets 

As the name suggests, mobile wallets can be downloaded as an application on your mobile device so that you can trade directly from your phone. These wallets are ideal for those users who wish to trade frequently. 

Online Wallets 

Online wallets can be accessed from any device, making them extremely convenient. However, the private keys are stored by third-party website owners rather than users themselves. 

Some popular software wallets include MetaMask, Trust Wallet, and Exodus

What Is A Hardware Wallet? 

Hardware wallets allow users to store their private keys in a “cold” or “offline” environment. This simply means these wallets are not connected to the internet, except when the user connects them to a device to initiate and complete a transaction. Unlike software wallets connected to the internet and vulnerable to exploits by hackers, hardware wallets are often considered the gold standard when it comes to the security of user assets. Most users don’t bother about things like custody and private keys and often take the easy route. This means they, more often than not, give wallet services run on behalf of exchanges the custody of their private keys, unlike hardware wallets, which allow users to maintain complete control over their assets.

Because hardware wallets are not connected to the internet, hackers can’t access the private keys stored on them. When the hardware wallet holder needs to send or receive crypto, they can connect the wallet to a computer, sign the transaction via the private keys held in the wallet, and complete the transaction. At no point during the entire process do the private keys leave the wallet. Popular hardware wallets include Ledger, Trezor, KeepKey, and Keevo

Advantages And Disadvantages Of Software Wallets 

Software wallets offer their users considerable advantages. 

  • Software wallets are easy to use and are ideal for casual users and beginners. They are also suitable for frequent traders. 
  • These wallets do not require physical storage or transition from offline to online to complete transactions. Transactions can be completed in mere minutes. 
  • They can be accessed from various devices, such as your mobile or laptop. 
  • Software wallets are usually free and can be set up in minutes. 


However, they also have some disadvantages. 

  • Software wallets are less secure than hardware wallets. Storing a large amount of crypto in hot wallets is not advisable. 
  • Because software wallets are connected to the internet, they are vulnerable to hacks. 
  • The private key is often stored online, leaving it vulnerable to security threats. 
  • Users could also lose access to their funds if the wallet service stops access. 

Advantages And Disadvantages Of Hardware Wallets 

Hardware wallets have the following advantages. 

  • Users’ private keys are stored in a completely secure, offline environment, giving maximum security. 
  • Hardware wallets allow users to manage their private keys, giving them complete ownership and control of their assets.
  • Because the private keys are kept offline at all times, hardware wallets ensure that they are immune to any malicious software. 
  • If a user loses their wallet, they can easily use the seed phrase, regenerate their private key, and access their funds using a different wallet.


However, there are a few downsides. 

  • Hardware wallets come with quite a high upfront cost.
  • New users may have to go through a steep learning curve to get used to hardware wallets. 
  • While there has not been a real-world attack on a hardware wallet, they are susceptible to supply chain attacks. In a supply chain attack, malicious actors acquire the wallet before it is sent to the user and could potentially tamper with and compromise the wallet’s security.
  • Hardware wallets also put the onus of securing the keys in the hands of the user. While this is considered an advantage, users have no recourse if their wallet is stolen or funds compromised. 
  • Hardware wallets are also less convenient for day-to-day transactions because they require you to plug them into your computer before accessing your funds. 

Hardware Wallet vs Software Wallet: In Closing 

At the end of the day, choosing a wallet boils down to preference and how you wish to trade. If you are a beginner, a casual trader, or someone who trades frequently, software wallets seem to be the way to go. However, if you plan to hold your assets for the long-term, then a hardware wallet might be a more viable option. In both cases, it is imperative to be thorough with your research before making a choice. 

Disclaimer: The content of this email is strictly for information purposes only. All of the opinions expressed in this email are not connected to CoinSmart and are not intended to provide you with investment advice. It is important that you do your personal research and/or consult an investment advisor to determine what is right for you.