Hardware Wallet

A Hardware Wallet is a type of cryptocurrency wallet that’s based on a physical device, such as a USB thumb drive with buttons and a screen, that stores your private keys to your cryptocurrency funds.

A hardware wallet is considered a cold wallet in that it isn’t connected to the Internet, keeping your wallet (and wallet funds) away from hackers and theft.

When you want to access and transact with your digital assets, the hardware wallet needs to be connected to a computer or mobile device using USB or Bluetooth.

Once the hardware wallet is connected to the Internet, you can perform all of the actions of a hot wallet, such as a cryptocurrency exchange wallet on Coinbase, for example.

Hardware wallets also have the added benefit of transacting in a secure manner even when connected to an Internet-connected device like a computer.

When completing transactions related to your hardware wallet funds, the signing of the transaction by your private keys is still done offline, within a special part of the hardware wallet not connected to the Internet.

Once that is complete, the signed transactions are sent off to the blockchain for verification.

Hardware wallets, while considered the most secure method of storing your private keys because no third party is involved, do require more responsibility and trust from you.

By using a hardware wallet, you are trusting yourself

to not lose the device,
to keep the device free from damage,
to keep the device away from others,
to remember your device password or PIN,
to set up/backup your recovery phrase

Ultimately, you have to make a decision about how safe and secure you want to keep your crypto assets and how much easy access and convenience you need to your crypto assets on a day-to-day basis.

Ledger is most well known for its Nano series of hardware wallets.

Related Terms

Desktop Wallet

A common type of crypto wallet used to securely store and manage your private keys on a computer hard drive. They’re considered more secure than web-based wallets, since you can only access them from wherever your computer is located, and again, you control your private keys.

Wallet

Made up of a unique public address called your public key (similar to your bank account number) that you can share with the world, your friends, family, and other businesses and companies that you trust, to send and receive digital assets. A wallet also stores a private key (much like the PIN that you use to access your bank account at the ATM), which, when combined with the public key, confirms ownership of the wallet, and allows you as the wallet owner to view the digital record of your wallet transactions, and allows you to perform actions such as buying, selling, withdrawing, and swapping funds.

Cold Wallet

Cold wallets are not connected to the Internet, providing added security over hot wallets. Cold wallets are not directly exposed to Internet security threats like hacks, phishing attempts, malware, viruses, and other attacks that could lead to the permanent loss of your cryptocurrencies and digital assets.

Software Wallet

A form of cryptocurrency wallet that’s based on software, so installed as a mobile app or accessed via a website, or installed as software on a desktop or laptop computer. The software itself stores your private keys that are used to access your cryptocurrency funds.

Cold Storage

Cold Storage is a short and long-term cryptocurrency storage solution that involves storing most or all of your cryptocurrency reserves offline. Forms of offline storage include a computer not connected to the Internet, hardware wallets like the Ledger Nano, a USB thumb drive that is kept in a safe or other secure location, on a piece of paper, or even on other physical items like an actual coin.