If you are new to cryptocurrency investments, you may be wondering about the pros and cons of a hardware versus a software wallet when it comes to storing your cryptocurrency. To decide which is best for you, it is first important to understand what each of them is and how they store your crypto assets.
Cryptocurrency is not actually stored in a wallet. It is stored on the collective blockchain network. What you store in your wallet are the private keys that prove ownership of your cryptocurrency. A software wallet, sometimes known as a ‘hot wallet’, stores these keys digitally online in cloud-based storage. A hardware wallet is a device that attaches to your computer or other device so you can transfer the keys onto the separate device and store them there. This is sometimes known as a cold wallet.
When it comes to crypto assets, cold storage refers to wallets that store your keys offline. This is usually a hardware wallet, but cryptocurrency is also considered to be in ‘cold storage’ if it is stored on a device that is not connected to the internet. Crypto keys can even be stored on paper. If you want to store your keys offline, however, a hardware wallet is generally considered the best way to do so.
Software wallet vs hardware wallet: Which is best?
Whether you prefer a software or hardware wallet will depend on your personal preferences, and how you use your cryptocurrency.
A software wallet can be very convenient, as it is connected to the internet and makes accessing your coins to complete transactions much easier. If you use your coins to gamble at online casinos, or to make any kind of regular online purchases, you may prefer a software wallet. The same is true if you are trading your coins regularly on an online exchange. Many software wallets are also free, which is obviously a big advantage.
However, there is a disadvantage to the fact that your funds are so easily accessible to you, and that they may be accessible to others as well. Software wallets are susceptible to hackers, and while hacking isn’t that common, it is always a possibility when your keys are stored online.
Hardware wallets are more secure than software wallets as they are not connected to the internet, so are not susceptible to being hacked. They are, however, not as convenient as software wallets, as your cryptocurrency is not immediately available when you want to make an online transaction. This means that a hardware wallet may be more suitable if you want to hold cryptocurrency long-term.
A further issue with hardware wallets is, of course, cost. Many software wallets are available free online, sometimes provided by your crypto exchange. Hardware wallets are devices which must be bought, and the better-quality ones can be as much as $200 or more.
Ultimately, what kind of crypto wallet you use will depend on what your priorities are and how you use your cryptocurrency. Just be sure to pick a secure wallet from a trusted provider.
