There is no real conflict between hardware cryptocurrency wallets and so-called private wallets because these are very different products with totally separate functions.
A hardware wallet is an actual physical device, a sort of hard drive designed for offline altcoin storage. The hardware wallet exists for only one purpose – to keep your cryptocurrency as safe and as secure as possible.
You cannot make transactions with a hardware wallet unless it is connected to the internet or a computer. Instead, you will have to use another mechanism, such as a private wallet, to spend, sell or transfer your altcoins from the hardware wallet.
What is the Difference between Private and Hardware Wallets?
A private wallet is a digital application designed for the storage, transmission, and protection of cryptocurrency. The best way to think of a private wallet is that it is a PayPal account for altcoins.
Unlike hardware wallets, private wallets are purely digital constructs, they exist only on the internet or on your computer. That means some private wallets can be loaded onto a hardware wallet.
Private wallets are different from commercial wallets such as Coinbase or TenX because they are designed to provide a high level of security and anonymity. Some private wallets such as the Parity are designed with a small footprint so that they are hard to track online.
How Private Wallets Work
All private wallets have a high level of encryption and a number of do-it-yourself features. Most of the private wallets, such as MyEtherWallet are designed so that you need a special code to access them. Ideally, the code is made available to just one person the owner to guarantee maximum security.
Despite that, private wallets still exist primarily in the cloud, which is why some people distrust them. They fear, probably correctly, that anything on the cloud can be hacked.
A major difference between private wallets and commercial wallets is that the employees of a company, such as a payment processor or altcoin exchange, are not supposed to access them. Generally, the employees of an exchange like CEX.IO or a payment processor, such as TenX or ShakePay, have the legal right to access members’ accounts.
Private wallets are usually created by a team of designers who simply make them available to users. The hope is that the users will test the wallet and help the developers come with applications they can sell for profit.
Something to be aware of is that many of the private wallets including the Parity and MyEtherWallet are open-sourced projects. That means anybody can download the code and blueprints to the wallet and play around with it. Some private wallets are also designed to be integrated into e-commerce websites and other solutions.
How Hardware Wallets Work
The present generation of hardware wallets such as the TREZOR and Ledger Nano S were designed as storage devices. They provide a drive you connect to a computer or smartphone and load altcoins on.
The drive is usually protected by high levels of encryption, and a password you have to enter in order to access your cryptocurrency. Most of the hardware wallets on the market also have a recovery sheet, a piece of paper that contains codes which can be used to recover the money if the device is lost, destroyed or stolen.
Interestingly enough, some private wallets like MyEtherWallet can be loaded onto certain hardware wallets including the TREZOR. The TREZOR will only work with Ethereum if MyEtherWallet is loaded to it.
There is a next generation hardware wallet called the Ledger Blue which will allow you to manage your cryptocurrency from the wallet. The Ledger Blue will have a direct internet connection, a touchscreen, and the ability to execute a wide variety of transactions directly from the device. Ledger Blue is not scheduled to go on sale until October 31, 2017.
This means the Ledger Blue will operate like both a Private Wallet and a hardware wallet. If the claims about it at the manufacturer’s website are true the Ledger Blue will be both a hardware wallet and a private wallet.
Why Private Wallets are also Browsers
The Ledger will be more like a private wallet because it will contain a browser as well as a wallet. Popular private wallets such as the Parity and MyEtherWallet are actually browsers. Parity’s creators even bill their application as an “Ehtereum browser” at their website.
Such a browser is necessary because the next-generation cryptocurrencies such as Ethereum, NEO, and Waves, are actually networks. Ethereum is a system designed to transmit data and payment via the blockchain. The Ether currency is really a mechanism designed to move data and payment around, in the way an email moves data through Gmail.
Since these networks are highly encrypted and blockchain-based a special browser is needed to navigate them. Wallets like the Parity are designed to function as such a browser. One of the browser’s features is a wallet that you can store your currency in.
Wallets are Data Management Devices
This is why it is possible to store and transmit a wide variety of altcoins with the Parity or MyEtherwallet. It is also why you can transmit and even create smart contracts through the Parity.
Something that many people do not realize is that wallets like the Parity are designed to keep a wide variety of data including contracts, legal documents, and investments safe. That makes them data management applications and the Ledger Blue, a data management device.
Therefore, a good way to think of hardware wallets is as data storage devices. A sort of next-generation UBS drive with a higher level of security.
Why you Need Both Private and Hardware Wallets
That means a serious cryptocurrency user needs both private and hardware wallets because they serve separate functions. The private wallet exists to manage your cryptocurrency online, while the hardware wallet exists to keep your altcoins safe online.
A smart person will use a hardware wallet to store excess coins but keep the altcoins he wants to use right away in a private wallet. You can think of the hardware wallet as the savings account and the private wallet as the checking account. The checking account is designed to help you spend your money safely, but the savings account is designed to keep your money safe.
That means you will keep the money you do not need the hardware wallet and the money you need to live on or spend in the private wallet. Many people will also get a commercial cryptocurrency wallet to facilitate spending.
Why you will Need a Third Cryptocurrency Wallet
Commercial wallets, like TenX, contain an app that converts cryptocurrency into fiat currency (paper money). This allows you to quickly turn DASH or Ethereum into dollars if need be.
More importantly, products like the TenX app, and Shakepay, support a MasterCard or Visa debit card. The debit card can be used to make purchases at brick and mortar stores or get cash from ATMs and cash registers.
Most cryptocurrency users will need such a wallet because they will need altcoin for important but mundane purposes; such as buying groceries, filling the gas tank, or paying the electric bill. One big advantage to TenX, Shakepay and Uquid is that you can use their Visa or MasterCard products for all of those things.
Which is Better Hardware or Private Wallets?
If you could only have one kind of cryptocurrency wallet a private wallet would best because you can use it for a wide variety of tasks online. The present generation hardware wallets only provide altcoin storage.
It would make absolutely no sense to own a hardware wallet but not maintain a private wallet and a commercial wallet. Without a private wallet, the hardware wallet will be a useless hunk of metal and plastic; and the cryptocurrency worthless because you would have no way to use it.
One big advantage to hardware wallets is that you can use them to access your cryptocurrency at many different computers. Note you can do the same with a private wallet but they may not be as safe. The TREZOR’s creators at Satoshi Labs, claim their device can be safely used on computers infected by malware.
Advantages and Disadvantages to Hardware and Private Wallets
A disadvantage to the hardware wallet is that you will need access to a recovery sheet if it gets destroyed, damaged, lost or stolen. Another is that you may not be to access your coins if you do not have access to the gadget.
A tremendous advantage to private wallets is that they can be accessed through most computers and smartphones that have a late model operating system and an internet connection. Some private wallets such as the Parity are even designed to be installed in a browser with just one line of code.
Another advantage to private wallets is that some of them come in app versions that can be installed on smartphones such as Android devices. Since some of those devices have a higher level of encryption than hardware wallets, they might actually be more secure.
An intriguing advantage that new smartphones such as the iPhone X have is advanced security features including facial recognition technology and fingerprint readers. These provide a layer of secure that is not available on present-generation hardware wallets.
This makes both solutions very handy to have and easy to use. It also means that neither construct is necessarily any better than the other.
The Future of Hardware Wallets and Private Wallets
The most likely scenario for the future of hardware wallets and private wallets is the convergence of the two solutions.
Hardware wallet makers like Nano will offer their own proprietary wallets and some Ethereum browser providers such as Parity Technologies will undoubtedly market their own hardware wallets at some point. Beyond that, some companies will offer private wallet apps that can be installed on hardware wallets or smartphone phones.
Hardware wallets that look and operate like smartphones such as the Ledger Blue are about to enter the market. There is also a strong possibility that some smartphone makers such as Apple and Alphabet (owner of Android and Motorola) will start offering wallet apps for their products.
A major possibility is that there will be a wide variety of wallet and browser apps for your phone or hardware wallet on the market. You will install these apps and perhaps buy them from the Apple App Store or Google Play. There might even a hardware wallet with a version of the App Store for cryptocurrency geeks at some point.
Why Hardware Wallets and Private Wallets will converge
Hardware wallets and private wallets will converge at some point in the near future for a very simple reason. People will need a device that will allow for instant real-time access to their cryptocurrency.
The big flaw with all present-day hardware wallets and most private wallets is that you cannot use them to make purchases at places like McDonald’s, the grocery store, the gas station, the drugstore, Walmart, or the hardware store. That makes cryptocurrency very cumbersome and deters many people from using because they need two or three solutions for everyday transactions.
Therefore the next evolution of cryptocurrency wallets will be a device or app you can take into McDonald’s and buy a burger with. TenX and Shakepay already have such wallets that can be used at McDonald’s via a Visa or MasterCard debit card.
The next logical progression will be an app similar to Apple Pay that lets you pay directly from your phone or wallet with cryptocurrency. To work such an app will have to convert cryptocurrency directly into government money. TenX has already perfected such an application and is marketing it.
Expect to see hardware wallets that allow for the conversion of major altcoins like DASH, Bitcoin, Litecoin, and Ethereum into fiat currencies in the near future. Some of those wallets will undoubtedly be equipped with QR (quick-read) or NFC (near field communications) capabilities that allow them to communicate with cash registers and facilitate payment. If it worked, this would enable you to pay for your Fillet O’ Fish with Litecoin at the press of an app.
Someday soon there will be no difference between hardware and private wallets because they will combine into one solution. Everybody will own and use an application or device that combines the attributes of both solutions.