What is a hardware crypto wallet and why should you use one?

When it comes to cryptoasset security, self-custody is unquestionably the safest way to protect your digital wealth.

Self-custody simply refers to storing and securing cryptoassets by yourself, rather than relying on a third-party to do it for you. One of the most effective ways to protect your private keys and your cryptoassets is to transfer your funds to a crypto hardware wallet. We call this a “cold wallet” solution. We often call these devices a non-custodial wallet, as opposed to a custodial wallet controlled by your exchange or crypto service provider.

What is a crypto hardware wallet?

A crypto hardware wallet is a physical device that stores the private keys used to access your cryptocurrency offline. If you are still learning about private keys and the cryptography that powers cryptocurrencies, you can check out our article, How do cryptocurrencies use cryptography?

These hardware devices typically look like USB sticks or key fobs. They are portable pocket vaults that digitally store the important information needed to access your crypto funds. They cost between $50 and $250 and we recommend using one to store your crypto, especially if you do not trade daily. A hardware wallet is like a regular pocket wallet. It contains your funds, is accessible only to you, and is far more secure than keeping your funds online.

 

Crypto hardware wallet image

How does a hardware wallet work?

Most online crypto wallets fall under the category of “hot wallets.” These include mobile wallets, desktop wallets, and web-based wallet services. All of these are connected to the internet and store their respective private keys online.

Cold wallets, on the other hand, are completely offline. They only connect to the internet if and when the owner chooses to move funds onto or off the device. No third-party trust is required. You remain solely in control of your funds in a hardware wallet. You have 100% access to your funds at all times no matter what happens in the market.

When you first purchase and use a hardware wallet, a you will generate a set of secret recovery phrases on the device. Should you lose, damage, or otherwise lock your hardware wallet, you can reenter the specific recovery phrases in the correct order. This will recover your account and any funds you have will be accessible through a new device.

Security tips

To maximize your hardware wallet security, all cold wallet manufacturers strongly advise people to store their devices in safes, locked boxes, or bank deposit boxes. You should protect a hardware wallet just as you would protect any other valuable personal item.

Be sure to keep your hardware wallet in a safe place at all times and separate your recovery phrase from the actual hardware. This guarantees that even if the hardware is stolen or destroyed, you can easily access your crypto and move it to another device.

At Kraken, we consider self-custody a vital part of being a good crypto user. If you want to learn even more about self-custody with a hardware wallet as well as how to move crypto between Kraken and a hardware wallet, head over to the Kraken Learn Center and check out our article What is a crypto hardware wallet? to get even more information.

 


These materials are for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell or hold any cryptoasset or to engage in any specific trading strategy. Some crypto products and markets are unregulated, and you may not be protected by government compensation and/or regulatory protection schemes. The unpredictable nature of the cryptoasset markets can lead to loss of funds. Tax may be payable on any return and/or on any increase in the value of your cryptoassets and you should seek independent advice on your taxation position. For more information, please see our Terms of Service.