In November 2022, FTX collapsed and wiped out roughly $8 billion in customer funds overnight. The people who didn't lose anything had one thing in common: they weren't keeping their crypto on an exchange.
A hardware wallet is the most practical way to make sure that never happens to you.
Hot Wallets vs. Cold Wallets
A hot wallet is any wallet connected to the internet. That includes exchange accounts, browser extension wallets like MetaMask, and mobile wallets. They're convenient, but they're also exposed to hacks, phishing attacks, and exchange insolvency.
A cold wallet stores your private keys offline. There's no internet connection to exploit. A hardware wallet is a cold wallet in physical form, usually a small device that looks like a USB drive.
How a Hardware Wallet Actually Works
Your crypto isn't stored inside the device. What the device stores is your private key, the secret string of characters that proves ownership of your holdings on the blockchain.
When you want to send crypto, you connect the hardware wallet, confirm the transaction on the device itself (not on your computer), and it signs the transaction without ever exposing your private key to the internet. Even if your computer is infected with malware, your key stays safe.
Do You Actually Need One?
This depends on how much you're holding. If you have $50 in crypto on an exchange, a hardware wallet is probably unnecessary. If you're holding more than $1,000 in crypto long-term, the math makes sense.
A hardware wallet costs around $70 to $200. That's a one-time fee to protect an indefinite amount of crypto for years. For long-term holders, it's one of the smartest purchases you can make.
Popular Hardware Wallet Options
Ledger is the most widely used brand. The Ledger Nano X supports over 5,500 cryptocurrencies and connects via Bluetooth. The Nano S Plus is a more affordable option for desktop use. Note that Ledger experienced a data breach in 2020 that exposed customer shipping information (no funds were lost).
Trezor is Ledger's main competitor and is fully open-source. The Trezor Model One covers the basics at a low price. The Model T adds a touchscreen and broader altcoin support.
Both are reputable choices. The decision usually comes down to which coins you hold and personal preference.
Getting Crypto Into a Hardware Wallet
Once your hardware wallet is set up, you'll need to move crypto to it. If you want to swap tokens before storing them, ChangeNOW (affiliate link, we may earn a small commission at no extra cost to you) lets you exchange crypto without creating an account. You can swap directly to your hardware wallet address. Private and straightforward.
The Rule You Cannot Break
When you set up a hardware wallet, you'll receive a seed phrase, usually 12 or 24 words. Write it down on paper. Store it somewhere safe, not in a photo on your phone, not in a note on your computer. If you lose your device, your seed phrase is the only way to recover your funds. Lose the seed phrase and the crypto is gone permanently.
That's not a risk worth taking lightly. A fireproof safe or a dedicated metal backup plate are popular solutions for long-term holders.