Hardware Wallets: What are they, how they work & how to use them

Discover the ultimate guide to hardware wallets in our latest blog post. Read now for expert advice and tips on choosing the best hardware wallet to secure your digital assets.

As the world of cryptocurrency continues to gather momentum and grow, securing your digital assets becomes more important than ever.

Hardware wallets are considered incredibly secure ways to store crypto investments. In this article, we'll explore what hardware wallets are, how they work, and also how to use them effectively.

What are hardware wallets?

A hardware wallet is a physical device explicitly designed for securely storing the private keys of cryptocurrencies. Unlike software wallets or online exchanges, hardware wallets store your private keys offline, providing an additional layer of security against hacks, malware, and unauthorized access.

What are cold wallets/storage?

Cold storage refers to keeping your cryptocurrencies offline, reducing the risk of theft or even loss due to hacks or other online vulnerabilities. Overall, there are two main types of cryptocurrency storage:

Hot wallets:

These are connected to the internet and convenient for frequent transactions but are more vulnerable to hacks and online threats.

Cold wallets:

These wallets are not connected to the internet, making them more secure. Hardware wallets are a type of cold wallet.

How Crypto Hardware Wallets Work

Generating private keys

When setting up a hardware wallet, the device generates a unique private key, a secret alphanumeric code that allows you to access and manage your cryptocurrencies. This secure private key is stored within the secure hardware device and wallet, ensuring only you can access your funds.

Signing transactions

You connect the hardware wallet to a computer or smartphone to initiate a transaction, usually via USB or Bluetooth. The wallet then signs the transaction with your private key without revealing it to the connected device. This ensures that your private key remains secure even if the computer or smartphone is compromised.

Recovery phrases

During the setup process, hardware wallets generate a recovery phrase, a series of words used to restore your wallet in case the device is lost, stolen, or damaged. Keep this recovery phrase in a secure and offline location, as anyone accessing it can potentially access your funds.

Why use hardware wallets? Benefits and advantages

Hardware wallets offer several advantages over other forms of cryptocurrency storage:

Enhanced security:

Storing private keys offline protects them from online threats such as hacks and malware.


Compact, lightweight hardware wallets can be easily transported and stored.


Hardware bitcoin wallets often come with intuitive interfaces, making them easy to use. Even for beginners.

Recovery options:

Hardware wallets come with built-in backup and restore functionality, allowing you to recover your funds if the device is lost or damaged. This is made possible through the use of recovery phrases, which are generated during the wallet's setup process.

Multi-currency support:

Many hardware wallets offer support for multiple cryptocurrencies, allowing you to manage various digital assets in one secure location. This can be particularly useful for investors who are interested in diversifying their cryptocurrency portfolio.

Best practices when using a hardware wallet

To get the most out of your hardware wallet and ensure maximum security for your private key, follow these best practices:

  1. Keep your recovery phrase safe: Store your recovery phrase in a secure location, preferably offline. Consider using a metal backup solution to protect it from fire, water, or other damage.
  2. Use a strong PIN: Set a strong, unique PIN for your hardware wallet to prevent unauthorized access.
  3. Keep your hardware wallet up to date: Regularly update the firmware on your wallet to ensure you have the latest security features.
  4. Verify the wallet's authenticity: Purchase your hardware wallet from a reputable source and verify its authenticity to avoid counterfeit devices.
  5. Double-check the recipient's address: Always double-check the recipient's address when sending transactions to avoid sending funds to the wrong person.

How safe are hardware wallets? Can crypto be stolen from a hardware wallet?

Due to their offline nature, hardware wallets are considered one of the most secure cryptocurrency storage methods.

However, no method of storage is 100% foolproof. While the chances of your crypto being stolen from a hardware wallet are minimal, there are still some risks, such as:

  • Physical theft of the device.
  • Unauthorized access if your PIN or recovery phrase is compromised.

In particular, be cautious of phishing scams where attackers attempt to obtain your hardware wallet crypto's private key or recovery phrase through deceptive websites, emails, or messages. Always verify the source of any communication related to your hardware wallet, and never share your private key or recovery phrase with anyone.

That said, using a hardware wallet and following best practices significantly reduces these risks.

Insured Cold Storage: An Alternative for Secure and Insured Crypto Storage

One additional option for storing your cryptocurrencies securely is using an insured cold storage product, such as the one offered by Nebeus.

This solution allows users to store their own crypto assets in a hardware wallet that is in the custody of BitGo, one of the largest custodians in the world, and insured by Lloyds of London. Here's more information about this offering:

Nebeus's Free Insured Cold Storage Vault provides a safe and insured place to store your Bitcoin and Ethereum, with $250 million in pool insurance coverage.

The custody service is provided by BitGo, which currently has approximately $64 billion in assets under custody. The insurance is offered by a syndicate of insurers in the Lloyds of London, covering $250 million when BitGo Trust or BitGo, Inc holds all private keys.

When you deposit funds into the Nebeus vault, they are transferred to BitGo. BitGo then stores your funds in a cold storage device and physically places it in a bank-grade Class III secured vault.

Deposits and withdrawals are protected by identity verification and multi-signature technology, and the insurance protects your funds against third-party hacks, copying, loss, theft of private keys, insider theft, and default.

What is the difference between a digital wallet and a hardware wallet?

A digital wallet is a software-based solution that stores cryptocurrencies on your computer or smartphone. While digital wallets are convenient for frequent transactions, they are more susceptible to online threats, such as hacking and malware.

On the other hand, a hardware wallet is actually a physical device that stores the user's private keys offline, providing increased security and protection against online threats.

In terms of user experience, digital wallets often come with more user-friendly interfaces and features, such as built-in exchange functions and price tracking.

Hardware wallets, on the other hand, focus primarily on security and may require additional steps to complete transactions, such as connecting the wallet to a computer or smartphone.

What happens if the hardware wallet stops working?

If your hardware wallet stops working, you can recover your funds using the recovery phrase generated during the wallet's setup. This recovery phrase can be used to restore your wallet on a new device or through a compatible software wallet.

Can hardware wallets hold all crypto?

Most hardware wallets support many cryptocurrencies, including popular coins like Bitcoin, Ethereum, and Litecoin. However, they may only support some cryptocurrencies available on the market. Before purchasing a hardware wallet, check if it supports the specific cryptocurrencies you plan to hold.

Which hardware wallet is best for cryptocurrency?

Several reputable hardware wallet manufacturers include Ledger, Trezor, and KeepKey. Each offers different features, price points, and supported cryptocurrencies.

When choosing the best hardware wallet, consider factors such as ease of use, security, and also compatibility with preferred cryptocurrencies.

In addition, also consider factors like customer support, community reputation, and the availability of instructional resources.

A good hardware wallet should have hardware wallet support that is responsive and a strong community presence, as well as comprehensive guides and tutorials to help users get started and troubleshoot issues.

How Much Does a Crypto/Bitcoin Wallet Cost?

The cost of a hardware wallet can vary depending on the brand and features offered. Generally, prices range from £50 to £200. Remember that the initial cost of a hardware wallet is an investment in the security of your digital assets.

Do hardware wallets have fees?

Hardware wallets themselves do not charge fees for transactions. However, when sending or receiving cryptocurrencies, network fees may apply. These fees are not determined by the hardware wallet but by the respective cryptocurrency network.

Should you consider when getting a Crypto hardware wallet?

When deciding whether to invest in a hardware wallet, consider factors such as:

  • The amount of crypto assets you own.
  • Your risk tolerance and security concerns.
  • The frequency of your transactions.
  • Your preferred cryptocurrencies and their compatibility with available wallets.

Another factor to consider when deciding on a hardware wallet is whether you plan to hold onto your crypto assets for the long term or actively trade them.

If you're a long-term investor, a hardware wallet may be a more suitable option due to its enhanced security features. However, if you're an active trader, you might find a digital or mobile app or wallet more convenient for frequent transactions.


Hardware wallets offer a secure, user-friendly, and portable cryptocurrency storage solution. By understanding how they work and following best practices, you can protect your digital assets from potential threats.

Remember to keep your recovery phrase safe and choose a reputable wallet that meets your security needs.

You can sign up for a Nebeus account to insure and keep your investments in a cold wallet.

La inversión en criptoactivos no está regulada, puede no ser adecuada para inversores minoristas y se puede perder la totalidad del monto invertido.

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