Crypto hardware wallets (or cold wallets) explained

William Peaster
Feb 04, 2022
|4 minutes read
hardware wallet

A cryptocurrency wallet is an app or device that people use for storing and transacting with cryptocurrencies like bitcoin (BTC), ether (ETH), and beyond. 

The cryptoeconomy has matured to the point that there are now a wide range of different wallets for crypto holders to choose from. These wallets come in different shapes and sizes, both figuratively and sometimes literally, and they optimize for different things. 

Indeed, some wallets focus on convenience via software-based mobile apps. Others emphasize privacy features. Others yet hone in on providing users with high security guarantees

With that said, one of the most popular types of crypto wallets are hardware wallets. These wallets are physical devices that balance convenience with practical, albeit robust, security. 

Accordingly, it’s no stretch to say that hardware wallets are among the safest ways to store crypto for most users, from novices to experts. 

How does a hardware wallet work?

A hardware wallet (or cold wallet) allows you to generate crypto addresses for a range of blockchains in an offline manner

Let’s use the example of using a hardware wallet to create a new Ethereum address. You could use it to create one public-private key pair or as many as you’d like. In the context of Ethereum, a public key is an address that you can receive ETH, NFTs, and other tokens at, while a private key is effectively your address’s “password.”

For recoverability, hardware wallets rely on what are known as “seed phrases” to backup crypto addresses. 

Let’s say you accidentally put a hardware wallet through a wash and dry cycle with your clothes, ruining the device in the process. You could then use your seed phrase, a randomized list of either 12 or 24 words, to restore your addresses to a new device

This is because a hardware wallet doesn’t directly store your cryptocurrencies. Rather, they provide you with direct access (and access only you can control via PIN codes, etc.) to your crypto accounts that are stored in the blockchain

Why are hardware wallets safer for crypto?

Blackhat hackers have a variety of ways they can compromise your computer. Hardware wallets are compelling because they mitigate many of these internet-dependent attack vectors and thus offer users a way to safely transact with their crypto.

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These mitigations derive from how hardware wallets protect private keys. A private key is akin to the password for your crypto address, a.k.a. your public key. Metaphorically speaking, a hardware wallet serves as a shield that prevents your address’s private key from ever touching the internet.  

This dynamic is why hardware wallets are characterized as “cold storage” — because the private keys within always remain isolated and offline in a small physical device. 

These are powerful guarantees, particularly when you consider that most crypto hacks occur against online software-based “hot” wallets. Because they exist entirely on your computer, these hot wallets and their private keys are more readily vulnerable to command and control attacks, keyloggers, phishing campaigns, and more. 

Examples of popular hardware wallets

There are a variety of hardware wallets to choose from in the cryptoeconomy today. Some of the most popular providers and devices are as follows. 

Going forward, look out for DeFi Pulse write-ups on these various wallet models. In the meantime, be sure to check out our Introduction to Cryptocurrency Wallets guide to learn more about the wider crypto wallet ecosystem.