Hardware wallet

Quick definition

Copy link to section
Updated: Dec 28, 2023

A hardware wallet, also known as a ‘hard wallet’, is a physical electronic device that stores your crypto offline.

Key details

Copy link to section
  • Hardware wallets offer a highly secure way to store cryptocurrency
  • These wallets keep crypto in ‘cold storage’, which means offline and in a way that isn’t connected to the internet at all
  • Wallets are secure, but require you to remember your unique private key or recovery phrase in order to access the money stored inside them

What is a hardware wallet?

Copy link to section

A hardware wallet is a cryptocurrency wallet that takes the form of a physical device, like a USB stick, and stores your crypto tokens offline. They are typically believed to be the most secure way to store your cryptocurrency, because they aren’t connected to the internet and thus it’s very difficult to hack them.

Hard wallets require you to set up a PIN code that you will have to use to access the wallet, so in case you lose your device nobody else can access your coins.

Another feature you should look out for is the recovery seed. This feature allows you to add a custom phrase, with which you can restore your hardware wallet if it gets lost or damaged (this is very important as you could lose access to your coins forever otherwise).

How do hardware wallets work?

Copy link to section

Exactly how your hardware wallet will function depends on which model you buy – some will have display screens, some will have different security features such as PINs and backup recovery phrases, and some can be as simple as a USB.

What they all do, however, is give you a wallet address that stores your crypto completely offline to keep them out of reach for hackers. Think of hard wallets as miniature computers that can handle crypto transactions without having to be connected to the internet.

How do I set up a hardware wallet?

Copy link to section

Each different hardware wallet will have its own steps to set up, but don’t worry because they are usually very simple and involve plugging in the device via USB and going to the company’s website. However, there are hardware wallets such as Trezor and KeepKey that will require you to download an extension on your Chrome in order to configure the wallet.

As you set up the hardware, remember it’s imperative that you record the recovery seed. This is a string of words (usually 24) to help you restore your wallet in the future should the device get stolen.

Do I need to download any software to use a hardware wallet?

Copy link to section

Sometimes you may need to download the software and configure your hardware, but it all depends on the hardware wallet you’re using. Most popular hardware wallets such as Trezor and KeepKey will only require you to download a plugin/extension from Google Chrome and configure your device, which includes setting up a PIN.

If you are using Ledger Nano S, you will just need to connect it to your computer’s USB port and follow the instructions.

What if I lose or damage a crypto hardware wallet?

Copy link to section

If you haven’t recorded your recovery seed phrase, it can be a real problem because there’s no way you will be able to access your crypto and it’s more than likely you’ve lost those coins forever. Fortunately, if you have taken the necessary backup steps then there are steps you can take to restore your hardware wallet.

Exactly where you have to go to enter your recovery phrase will depend on the wallet, but once you have done so you will regain access to your coins.

What’s the difference between hardware wallets and other crypto wallets?

Copy link to section

Hardware wallets are typically more secure, and the only type of wallet that comes in the form of a physical device rather than something you download (or make, in the case of a paper wallet).

Hard wallets are ‘cold wallets’ meaning that they keep all cryptocurrency offline. This makes hard wallets safer than mobile or desktop wallets, which are stored on devices connected to the internet, or online wallets, which are hosted directly.

Sources & references
Risk disclaimer
James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.