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Hardware Wallets vs. Software Wallets: What’s the Real Difference?
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In this guide, we’ll take a broader look at what crypto wallets are, how they work, and zero in on the differences between hardware and software wallets. Let’s dive in!
To store your digital asset investments, you require a cryptocurrency wallet. Crypto wallets come in different forms, with the two main categories being hardware wallets and software wallets.
Trust Wallet is an example of one of the most popular software wallets in the market. Trust Wallet is a trusted and secure self-custody wallet that allows you to buy, sell, swap, stake, and store your digital assets. Moreover, you can also connect your Trust Wallet to a hardware wallet for enhanced crypto storage security.
In this guide, we’ll take a broader look at what crypto wallets are, how they work, and zero in on the differences between hardware and software wallets. Let’s dive in!
Crypto Wallets Explained
Crypto wallets are used to secure your digital assets including cryptocurrencies, NFTs, digital identiy and more. Crypto wallets also act as an interface that allows you to use your cryptocurrencies in different ways, such as swapping them for other assets, staking them to earn a yield, or deploying them in decentralized finance (DeFi) protocols to earn investment income.
How Do Crypto Wallets Work Under the Hood?
Contrary to popular belief, a crypto wallet doesn’t actually store your digital assets. Your cryptocurrencies and NFTs are, in fact, stored on the blockchain, and secured by your wallet. What wallets allow you to do is access your digital assets stored on the blockchain. The way you can access your assets is by using your crypto wallet’s private keys.
A private key is a unique set of numbers and words that help you prove ownership of your crypto wallet and allows you to transfer your funds. The human-readable form of your private keys is your recovery phrase (also known as the seed phrase), which is a 12 or 24-word phrase you can use to access your crypto wallet.
Your private key is essential to ensure that your wallet is kept secure and can only be accessed by you, the owner of the wallet. Say you lose access to your Trust Wallet app on your phone because you accidentally delete the app. You can use your recovery phrase (i.e., your private keys) to regain full access to your wallet.
Your wallet’s public key, on the other hand, is derived from your wallet’s corresponding private key and is used to facilitate transactions. However, it’s your wallet address that others can send funds to, not your public key directly.
In practice, if you are using a wallet like Trust Wallet to receive crypto, all you need to do is share your crypto wallet address. When you send crypto, you need the recipient's crypto wallet address and enough crypto to pay the transaction fees on the blockchain network you use.
Hardware Wallets vs. Software Wallets
There are generally two types of crypto wallets: hot wallets and cold wallets.
A hot wallet is a crypto wallet that requires a connection to a device that has an Internet connection, while a cold wallet is not connected to the Internet.
Moreover, crypto wallets can be either custodial or non-custodial (self-custody).
A custodial wallet is one that is provided by a third party that also holds your private keys and thus has access to your digital assets. A non-custodial wallet, on the other hand, is one where you have full control over your private keys and your funds. Trust Wallet, for example, is a non-custodial wallet, which means only you control the assets you store using Trust Wallet.
Hardware Wallets
Hardware wallets fall under the category of cold wallets and are typically a physical device that resembles a USB stick or a bank card.
Hardware wallets are considered to be more secure than software wallets because someone would have to physically steal a hardware wallet from you to gain access to your crypto assets. The key feature of hardware wallets is that the digital assets are stored on an offline physical device programmed with software. This means that online hackers cannot gain access to your hardware wallet because it’s not connected to the internet except when you need to perform a transaction.
Therefore, hardware wallets are especially useful for storing large amounts of cryptocurrency.
In addition, many hardware wallets can store multiple cryptocurrencies, making them favorable for securely storing entire crypto portfolios. Examples of popular hardware wallets include Ledger and Trezor.
Despite being favored by the crypto industry, hardware wallets also have drawbacks.
Cost: Unlike software wallets, hardware wallets aren't free. They can range anywhere from $50 to $200, depending on the brand as well as features and functionalities.. This may be a deterrent for those who do not hold significant amounts.
Limited number of supported assets: Not all cryptocurrencies are supported by all hardware wallets. If you're dealing with a less common digital asset, it might not be possible to store it using a hardware wallet.
Limited accessibility: Since the hardware wallet must be physically connected to a device (usually through USB) to make transactions, it can be less convenient than, for example, a mobile wallet like the Trust Wallet app, which you can access from anywhere.
Risk of loss or damage: If you lose your hardware wallet or it gets damaged, you could potentially lose access to your digital assets. Most wallets have a recovery process, but it's crucial to keep a backup of your secret recovery phrase. However, if you forget or lose the secret phrase, your crypto assets are gone.
User experience: Using hardware wallets can be complicated, especially for beginners. They usually involve the setup of a PIN code, a recovery seed, and the manual operation of small buttons on the device. This complexity might deter some users.
Software Wallets
A software wallet is a hot wallet that remains connected to the Internet. Mobile wallets, desktop wallets, web wallets, and browser extension wallets fall under the category of software wallets.
To use a software wallet, you need to install it and set it up on your desktop computer or on your smartphone. Once you have downloaded the wallet application and have created a new wallet, you can start using it to store and manage your crypto assets.
A good example of a software wallet that you can get either as an app on your mobile device or as a browser extension is Trust Wallet. Trust Wallet allows you to store and manage over 10M+ digital assets across 70 blockchains (including NFTs), all under one roof.
With over 60M+ people using Trust Wallet, you get to enjoy full custody of your own digital assets and private keys. Additionally, developers can utilize the Trust Wallet Chrome Extension to execute smart contracts, given the crypto wallet’s recent integration of the zkEVM scaling solution.
Software wallets can also be used to access decentralized applications (dApps). Trust Wallet, for instance, has an in-built dApp browser that connects you to dApps on various blockchains. Another notable advantage of software wallets like Trust Wallet is that they're easy to access and use on a daily basis, as you don’t need to carry around a physical object that can be lost and not easily recovered. Lastly, software wallets can quickly facilitate payments in physical stores via scanning a QR code or near-field communication (NFC).
Despite the many benefits of software wallets, they also have drawbacks.
Security risks: Unlike hardware wallets, which keep your private keys offline and are generally immune to viruses and malware, software wallets can be more susceptible to various forms of cyber-attacks, including phishing, malware, keylogging, and hacking.
Network connection: To perform transactions, software wallets require an internet connection, which could be a limitation in areas with poor connectivity.
The Best of Both Worlds: Connecting Your Trust Wallet to Your Ledger
Although hot and cold wallets tend to work independently, there are certain cases where people can enjoy the best of both worlds in terms of functionality and security.
For instance, Trust Wallet has hardware wallet support. With this integration you can connect your Trust Wallet browser extension wallet with your Ledger hardware wallet to access Web3 while still keeping your private keys completely offline!
In addition, more people want to diversify how they control their crypto assets, and with hardware wallet sales growing, it would make sense to combine both wallets to give people the convenience that comes with both types of wallets.
So, how exactly can you go about connecting your Trust Wallet browser extension and your Ledger hardware wallet?
Step 1: Visit the Trust Wallet website and download the Trust Wallet browser extension that’s compatible with your browser of choice. However, please note that the Trust Wallet ledger support is currently not supported on the Firefox browser.
Step 2: Open the Trust Wallet browser extension and select the option to connect with your Ledger wallet. Remember, you will need to have your Ledger hardware wallet with you and stop any Ledger software application that might be open on your desktop to avoid any potential conflicts with the browser extension.
Step 3: Next, create your password, accept Trust Wallet’s ‘Terms of Use,’ and click on ‘Proceed.’
Step 4: At this point, plug in your Ledger hardware wallet, enter your PIN to unlock it, and click on ‘Connect.’
Step 5: Open the specific blockchain app you want to use on your Ledger to ensure a seamless connection to your Trust Wallet browser extension. Once your blockchain application of choice is ready, click on ‘Connect’ on your Trust Wallet browser extension.
Step 6: Proceed to give Trust Wallet permission to connect to your Ledger. To do this, select the device name and click on the ‘Connect’ button by selecting the device name and clicking the “Connect” button. Remember to have your Ledger device properly connected to your desktop and unlocked. Lastly, choose the Ledger addresses that you want to access through Trust Wallet and click on ‘Continue.’
And that’s it. That’s how to connect your Ledger hardware wallet using the Trust Wallet browser extension. Once your wallet is ready, you will be able to view and manage all your Ledger wallet addresses using the Trust Wallet browser extension.
Conclusion
Crypto wallets play an important role in the Web3 economy. However, with the plethora of crypto wallets available on the market, it's important to find one that works for your needs.
Software wallets are much more accessible and, therefore, common than hardware wallets. This is because with a software wallet, all you need to do is download or install it on your device and you are good to go. However, hardware wallets have to be purchased from a trusted seller, and they often aren’t that cheap.
While hardware wallets provide an additional layer of security, they're less user-friendly and can’t be easily utilized for day-to-day crypto transactions.
To combine the positive aspects of hardware and software wallets, Trust Wallet gives people the ability to connect these wallets to each other. This is a great opportunity for the crypto community as it gives them the freedom to access the world of Web3 while enjoying the ease of using a hot wallet with the added layer of security of a cold wallet.
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Note: Any cited numbers, figures, or illustrations are reported at the time of writing, and are subject to change.