Hardware wallet

Digital assets like Bitcoin, Ethereum and NFTs offer fascinating opportunities – but they also come with challenges. If you want to store your cryptocurrencies securely in the long term, you're faced with an important decision: how do you protect coins from hackers, phishing and technical failure? Many users rely on online wallets or exchanges, but such solutions carry higher risks. This is where the hardware wallet comes in – a specialised device that ensures maximum security.

In our guide, you'll not only find out which models of hardware wallets are available and which ones perform well in comparison, but also why a hardware wallet ensures maximum security and how to set one up.

• A hardware wallet is a particularly secure wallet that protects cryptocurrencies from hacks, malware and phishing attacks.

• In contrast to a software wallet or storage on an exchange, users with a hardware wallet retain full control over their assets.

• The most secure hardware wallet always uses PIN protection, tamper-proof security chips and other security precautions.

• When purchasing a hardware wallet, you should only use official manufacturers or authorised resellers to avoid tampering.

What is a hardware wallet?

A hardware wallet is a specialised device for securely storing cryptocurrencies. Unlike software wallets, which are installed on a computer or smartphone, a hardware wallet in the crypto space stores private keys offline. This makes them immune to online attacks such as hacks, malware or phishing. In contrast to a custodial wallet, where a third party stores the private keys, a hardware wallet gives the user full control.

These devices are specifically designed to sign transactions securely without the private keys ever leaving the device. They include various security features such as PIN protection and secure storage areas. Well-known manufacturers like Ledger and Trezor offer a range of models that differ in features, ease of use and security standards.

Why do you need a hardware wallet?

Anyone who owns crypto coins or tokens is responsible for their security. Many users store their coins on an exchange, but that carries risks. Centralised platforms can be hacked, go bankrupt or impose unpredictable restrictions. In contrast to storage on an exchange, where the provider manages the private keys, a hardware wallet offers complete control over your coins.

With a hardware wallet, Bitcoin, Ethereum, NFTs and other assets remain under your own control. Especially for long-term investors or large holdings, a hardware wallet is the safest solution.

What types of hardware wallets are there?

Hardware wallets come in different designs that vary in security features, usability and connectivity.

The main types are:

• USB hardware wallets: connected to the computer via USB cable

• Bluetooth hardware wallets: offer wireless connectivity for more flexibility but may be more vulnerable to attacks than wired models

• Air-gapped hardware wallets: operate without direct connection to other devices, using QR codes or SD cards to ensure maximum security

• Smartcard-based hardware wallets: smaller devices in credit card format using NFC technology for easy handling

• Multisignature hardware wallets: support joint asset management by requiring multiple keys for transactions

How does a hardware wallet work?

The process begins with the creation of a private key, which is generated directly on the hardware wallet. The key never leaves the device, even when you're making transactions. When sending Bitcoin, Ethereum or other cryptocurrencies, the transaction is first initiated on an external device such as a computer or smartphone. The wallet generates a unique address that is used to receive Bitcoin, Ethereum or other cryptocurrencies. The hardware wallet signs the transaction internally before sending it to the network. Since the private keys never leave the device, security is maintained – even if the connected computer is infected with malware.

Compared to other wallet types, hardware wallets offer a particularly high level of protection as they're not directly connected to the internet. But how exactly do they differ from a software wallet?

Hardware wallet vs software wallet

Many users manage their cryptocurrencies in a software wallet installed on a computer or smartphone. This solution is convenient for short-term access and daily trading, but it carries a high risk because private keys are stored on an internet-connected device. As a result, they can be stolen by hackers or through viruses and phishing attacks.

A hardware wallet, by contrast, always remains offline, so private keys can't be accessed externally. Even if a device connected to the wallet is compromised, the stored cryptocurrencies remain secure. This added protection makes hardware wallets particularly suitable for the long-term storage of large amounts.

While a software wallet can make sense for quick access to cryptocurrencies, a hardware wallet is the safest choice for users who want to invest long term and protect their digital assets as best as possible.

How do you set up a hardware wallet?

Setting up a hardware wallet is a crucial step in securely storing cryptocurrencies.

Here's a guide to properly configure your wallet and optimally protect it:

1. Choose a hardware wallet: select a model that supports your preferred cryptocurrencies and meets high security standards.

2. Connect the wallet to your device: plug the hardware wallet into your computer or smartphone via USB or Bluetooth.

3. Follow the manufacturer's instructions: open the official app or software from the wallet provider such as Ledger or Trezor to begin setup.

4. Create a PIN: set a secure PIN to prevent unauthorised access to the wallet.

5. Write down the recovery phrase (seed): record the recovery phrase and store it safely, as it's your only backup.

6. Verify the recovery phrase: confirm the seed phrase by entering it in the correct order.

7. Install the necessary apps: download wallet software for your cryptocurrencies to manage your coins and tokens such as Bitcoin, Ethereum or NFTs.

8. Send a first test transaction: transfer a small amount to check correct setup and functionality.

Are hardware wallets secure?

Yes, hardware wallets offer the highest level of protection for crypto coins. The wallet processes and signs transactions internally, so the private keys never leave the device. This prevents attackers from reading or tampering with the key. Additionally, hardware wallets include multi-layered security mechanisms such as PIN protection, specialised security chips and protection against side-channel attacks. Many models display transaction details on a dedicated screen so users can spot suspicious activity immediately. Phishing attacks are also made more difficult, as every action must be physically confirmed on the device. Personal data is often a target: during the 2020 Ledger data breach, sensitive customer data was leaked. This shows that the purchase process also plays a role – ideally, you should buy your wallet anonymously or from providers with high privacy standards.

Although hardware wallets are extremely secure, they can still be hacked. Attacks usually require physical access to the wallet and very advanced technical skills. The greatest vulnerability often lies not in the hardware itself but in user behaviour – such as falling for phishing attacks or storing the recovery phrase insecurely.

To maximise the security of your hardware wallet, you should take the following measures:

• Buy the wallet directly from the manufacturer or authorised resellers to prevent tampering.

• Keep your wallet's firmware up to date to benefit from the latest security updates.

• Store the recovery phrase (seed phrase) securely and offline, as it's the key to recovering your wallet.

The pros and cons of hardware wallets

Hardware wallets offer a way to store cryptocurrencies securely, but they also come with some downsides. The decision to use a hardware wallet depends on how much you value security, convenience and cost.

Advantages:

• protection against hackers, malware and phishing attacks, as there's no direct internet connection

• independence from crypto exchanges, since users have exclusive control over their assets

• support for various cryptocurrencies, depending on the model, also for NFTs and other digital assets

• built-in protective mechanisms such as PIN locks

Disadvantages:

• usually higher cost compared to software wallets, since hardware wallets must be purchased

• somewhat less convenient to use, as the physical device is required for every transaction

• risk of loss, as the device can be damaged or misplaced

• reliance on the recovery phrase

• possible compatibility issues, as not all hardware wallets support less common cryptocurrencies or NFTs

How do I find the right hardware wallet for me?

Choosing a hardware wallet depends on various factors, including security features, supported currencies and ease of use. Someone who trades cryptocurrencies frequently needs a different solution than someone who wants to store coins long term.

To find the right hardware wallet, you should consider the following aspects:

• Supported cryptocurrencies: make sure the wallet can manage your preferred coins and NFTs.

• Security features: look for PIN protection, secure chips and additional safeguards against tampering.

• Ease of use: check if the device is user-friendly and compatible with your computer or smartphone.

• Connectivity options: choose between USB, Bluetooth or air-gapped wallets based on your security needs.

• Value for money: consider the cost and decide whether the additional security features justify the price.

• Manufacturer's reputation: buy only from reputable providers such as Ledger or Trezor to avoid tampering.

Frequently asked questions about hardware wallets

Still unsure whether a hardware wallet is the right choice for you – and if so, which one? In our FAQ, you'll find more information to help you make a decision.

What is the most secure hardware wallet?

The most secure hardware wallet is a model that stores private keys completely offline, uses tamper-proof security chips and offers strong authentication mechanisms. Devices such as the Ledger Nano X, Trezor Model T and BitBox02 are considered particularly secure because they allow PIN protection, encrypted storage and regular firmware updates. The BitBox02 from Shift Crypto is a popular hardware wallet with open-source software and additional security features. Air-gapped wallets such as the Coldcard offer extra security, as they operate entirely without internet or Bluetooth connections.

Which hardware wallet is the best?

The best hardware wallet always depends on your individual needs. The Ledger Nano X offers a good balance between security and usability, while the Trezor Model T stands out with open-source software and a touchscreen. If you're looking for maximum security, you might opt for models like the Coldcard or the BitBox02.

What happens if the hardware wallet breaks?

If a hardware wallet breaks, your stored cryptocurrencies aren't lost as long as you've securely stored the recovery phrase (seed phrase). With the 12- to 24-word phrase, you can recover the wallet on a new device. It's important to store the seed phrase in a safe place. Even if the wallet is only damaged but still functioning, it's a good idea to transfer the cryptocurrencies to a new wallet before it fails completely.

Where can I get a hardware wallet?

You should only buy a hardware wallet directly from the manufacturer or authorised resellers to avoid tampering. Official websites like Ledger, Trezor, BitBox and Coldcard offer guaranteed original products. Specialised crypto shops are also an option, provided they're listed as authorised resellers.

More topics on cryptocurrency

If you're interested in different topics related to wallets and coins, we recommend taking a look at our Bitpanda Academy. Here you'll find numerous articles and videos on topics including cryptocurrencies, blockchain projects, investments and much more. Whether you're a beginner or an expert, we offer comprehensive introductions, insightful overviews and easy-to-understand guides on complex issues.