Hardware Wallet vs Exchange: Where Should You Keep Your Crypto?

This guide explains the difference between keeping crypto in a hardware wallet vs exchange, and helps you decide which is right for you.

When you buy cryptocurrency on an exchange like Coinbase or Kraken, you do not actually hold the crypto yourself. The exchange holds it on your behalf. For small amounts and short-term use, this is fine. For larger amounts or long-term holding, it carries real risk.

Keeping crypto on an exchange

When your crypto sits on an exchange, the exchange controls the private keys. Private keys are what prove ownership of cryptocurrency. If the exchange controls the keys, they control the crypto.

There is a saying in the crypto world: “not your keys, not your coins.” It exists for good reason.

Advantages of keeping crypto on an exchange:

• Simple and convenient
• Easy to buy, sell, or trade quickly
• No extra hardware or setup required
• Good for active traders

Risks of keeping crypto on an exchange:

• If the exchange is hacked, your crypto could be stolen
• If the exchange goes bust, you may not get your crypto back
• Your account could be frozen or restricted
• Crypto on exchanges is not protected by the FSCS

These are not theoretical risks. Exchanges have been hacked, and some have gone bankrupt with customer funds lost. The most high-profile example is FTX, which collapsed in 2022 leaving customers unable to access billions in crypto.

Using a hardware wallet

A hardware wallet is a small physical device, similar in size to a USB stick, that stores your private keys offline. Because it is not connected to the internet when not in use, it is far harder for hackers to access.

Popular hardware wallets include Ledger and Trezor. You connect the device to your computer only when you need to make a transaction, and confirm the transaction on the device itself.

Advantages of a hardware wallet:

• You control your own private keys
• Much more secure against hacks
• No reliance on a third party
• Good for long-term holding of larger amounts

Risks of a hardware wallet:

• If you lose your seed phrase and your device, you lose your crypto permanently
• More setup and responsibility involved
• Not ideal for active trading
• Upfront cost of the device (typically £50 to £150)

The biggest risk with a hardware wallet is human error. You must store your seed phrase safely, offline, and never share it with anyone. There is no customer support line to call if you lose access.

What is a seed phrase?

A seed phrase is a series of 12 or 24 random words generated when you set up your hardware wallet. It is the master backup for your wallet. If your device is lost, stolen, or broken, your seed phrase lets you recover your crypto on a new device.

Write it down on paper. Store it somewhere safe and private. Never take a photo of it or store it online. Never share it with anyone for any reason. Anyone who has your seed phrase has access to your crypto.

So which should you use?

The honest answer is: it depends on how much you have and what you plan to do with it.

• Small amounts or active trading — keeping crypto on a reputable, FCA-registered exchange is reasonable
• Larger amounts or long-term holding — a hardware wallet is worth the setup effort and cost
• Both — many people keep a small amount on an exchange for convenience and move the bulk to a hardware wallet

There is no fixed figure that defines “large”, but a common rule of thumb is: if you would not be comfortable losing it, move it to a hardware wallet.

Where to buy a hardware wallet

Always buy a hardware wallet directly from the manufacturer. Never buy second-hand or from third-party sellers on marketplaces like Amazon or eBay. A tampered device could compromise your crypto.

We recommend Ledger and Trezor on our Resources page.