What Are Hardware and Software Wallets?

BeginnerJan 10, 2023
Learn How To Safely Store Cryptocurrencies
What Are Hardware and Software Wallets?

Cryptocurrencies are quickly becoming an increasingly large part in the portfolio of many investors. Due to their intangible nature, digital assets must be stored in a safe place and protected against any type of external attack, the solution being represented by hardware and software wallets.

What Is a Hardware Wallet?

A Hardware Wallet, also known as Cold Wallet, is a physical device that allows people to safely store their own cryptocurrencies without making use of an intermediary. Being a tangible object, the cold storage must be purchased and, in order to be accessed, it requires a password, also called seed phrase, which is known only by the owner. This characteristic allows the holder to be the only individual able to access the funds, eliminating any chance of hacking or vulnerability to any other type of virtual attack.

Although the Hardware wallet safely stores assets in an offline environment, the device still requires an Internet connection when transferring and checking funds.

Despite being a solution against online risks, a hardware wallet still has its own issues: if the owner loses it, he will no longer be able to retrieve his funds, a reason why people tend to store their money on multiple cold devices.

Moreover, when a user wants to access his own funds, he has to plug his cold wallet into a computer, making the whole process harder and increasing the necessary time for managing the assets. Using this type of device is usually harder compared to software wallets due to a more complex procedure, especially for beginners. Hardware wallets are truly the safest way for storing cryptocurrency but at the same time are harder to deal with, making them a perfect solution for tech experts and long-term investors.

What Is a Software Wallet?

A Software Wallet, also known as Hot Wallet, is a service provided by centralized or decentralized institutions that allows people to safely store cryptocurrencies. Being a digital platform, the wallet is always online, meaning that whoever possesses the seed phrase can access the funds at any time, making this type of storing assets susceptible to virtual attacks. \

Hot Wallets can be softwares downloaded on the computer, phone apps or platforms directly accessible from the browser. This allows users to immediately manage their own funds via a simple click or directly from their phone, making the hot wallet the easiest way to store cryptocurrencies, especially for short-term investors and beginners.

In order to use a hot wallet, users have to just create an account and memorize the seed phrase given by the platform, any information linked to the individual profile will be synchronized on each device, making the wallet accessible anytime and anywhere.

What Are The Differences Between Hardware and Software Wallets?

Despite having the same purpose, these two types of wallets have some substantial differences between each other:

  1. Security: Because they store the private keys offline, hardware wallets are typically thought to be more secure than software wallets. This is because they are less susceptible to hacking. On the other side, software wallets keep the private keys on a computer or mobile device, which is more prone to hacking.

  2. Convenience: Because they can be accessed from any device with an internet connection, software wallets are typically more convenient to use than hardware wallets. On the other hand, hardware wallets require the physical device to be present in order to access the cryptocurrency.

  3. Cost: Hardware wallets are typically more expensive than software wallets.

  4. Control: A hardware wallet gives the user total control over their private keys and allows them to conduct transactions without requiring authorization from any third parties. With a software wallet, the user’s private keys are kept on a server owned by a third party, therefore the user must rely on that company’s security protocols to keep their keys safe.

In a nutshell, hardware wallets offer a higher level of security but are less convenient to use, while software wallets offer less security but are more convenient to use. The choice between a hardware wallet and a software wallet will depend on the user’s needs and preferences.

Best Examples of Crypto Wallets

Some examples of popular hardware wallets include:

  • Ledger Nano: This is a popular hardware wallet that supports a wide range of cryptocurrencies. It is a physical device that resembles a USB drive, and is designed to provide a high level of security for your cryptocurrency holdings, as it stores your private keys offline. The Ledger Nano is considered to be one of the most secure ways to store and manage cryptocurrencies, as it provides an extra layer of protection against hacking and other online threats.

  • Trezor: This is another popular hardware wallet that supports a variety of cryptocurrencies. It has a simple, user-friendly interface and includes a number of security features to protect the user’s private keys. One of the main differences between Trezor and Ledger Nano is that Trezor was one of the first hardware wallets on the market and has a longer track record of security. Trezor is also compatible with a wider range of cryptocurrencies and generally has a more user-friendly interface.

  • KeepKey: This is a hardware wallet that is known for its large, easy-to-read display and robust security features. It supports several popular cryptocurrencies and has a sleek, stylish design. Users are able to maintain their crypto holdings in a completely safe manner thanks to KeepKey’s technology, which simplifies the backup and recovery procedure.

Some examples of popular software wallets include:

  • Electrum: This is a software wallet that is available for desktop and mobile devices. It is known for its fast transaction speeds and support for a wide range of cryptocurrencies. It is one of the oldest and most widely used Bitcoin wallets, with a strong track record for security and stability. Electrum allows you to customize your transaction fees, enabling you to prioritize speed or cost when sending cryptocurrencies.

  • Exodus: This software wallet has a user-friendly interface and is designed to be easy to use for beginners. Some key features of Exodus are: security, customizable fees, and an in-wallet exchange feature, which allows the user to quickly and easily exchange one cryptocurrency for another directly within the wallet.

  • Coinomi: This is a smartphone-focused crypto wallet that supports more than 1700 cryptocurrencies, making it the ideal solution for a mobile multi-currency wallet. Coinomi offers a secure and easy-to-use platform, and it also includes features such as in-wallet exchanges and buy/sell options. In addition, Coinomi is a non-custodial wallet, which means that the user retains full control over their private keys and funds at all times.


There is no correct answer to which wallet an investor should use because the choice lies with the individual’s purposes and the type of accessibility he/she would like to have on managing his funds. Usually, beginners tend to use a hot wallet because they can trade and oversee their assets more easily. A digital platform does not require any further steps, while withdrawal and deposit procedures are more straightforward compared to a hardware wallet. On the other hand, people with very large portfolios prefer to store their assets on physical devices as it is considered a safer solution.

Author: Larisa
Translator: Yuanyuan
Reviewer(s): Matheus, Hugo, Joyce, Ashley
* The information is not intended to be and does not constitute financial advice or any other recommendation of any sort offered or endorsed by Gate.io.
* This article may not be reproduced, transmitted or copied without referencing Gate.io. Contravention is an infringement of Copyright Act and may be subject to legal action.
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