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:
Choose a hardware wallet: select a model that supports your preferred cryptocurrencies and meets high security standards.
Connect the wallet to your device: plug the hardware wallet into your computer or smartphone via USB or Bluetooth.
Follow the manufacturer's instructions: open the official app or software from the wallet provider such as Ledger or Trezor to begin setup.
Create a PIN: set a secure PIN to prevent unauthorised access to the wallet.
Write down the recovery phrase (seed): record the recovery phrase and store it safely, as it's your only backup.
Verify the recovery phrase: confirm the seed phrase by entering it in the correct order.
Install the necessary apps: download wallet software for your cryptocurrencies to manage your coins and tokens such as Bitcoin, Ethereum or NFTs.
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.
