After more than $200 million dollars worth of crypto was stolen in recent months from tampered Ledgers, and Coldcards where the seed generated wasn’t truly random, faith in hardware wallets has been shaken to the core.
These Bitcoin and crypto holders did everything right. They bought the products from official sources, correctly stored their seed phrases and they trusted in the phrase “not your keys, not your coins”, but they lost out any way. The thefts suggest that even the most diligent crypto holder using a hardware wallet faces risks beyond their control.
With the number of physical attacks on crypto holders rising — there’s been a $5 wrench attack in France every 2.5 days this year — the drawbacks of storing crypto on a hardware wallet are becoming clearer. And that’s even before you consider how many crypto owners have lost wallets and seed phrases over the years — “boating accidents” for tax purposes excluded.
There are plenty of drawbacks with all of the alternative methods of holding crypto however, so spreading your stack across different addresses and via different methods will at least minimize the damage if any one method is compromised.
Here are five alternatives for storing your crypto.
1. Crypto ETFs: Trusting BlackRock may now be an option
The first and most important caveat to this hardware wallet alternative is that it isn’t technically a way to store crypto at all. Even if you deposit Bitcoin directly, it is exchanged for shares in a financial product that holds crypto assets through a custodian. You end up with a claim on the ETF’s net asset value in dollars, not in Bitcoin. So there are trade offs.
On the one hand, using crypto exchange-traded funds (ETFs) removes many of the headaches associated with direct ownership, like protecting your seed phrase, backing up your wallet or worrying about every knock at the door.
On the other hand, crypto ETFs present their own risks, like trusting a centralized provider, third-party custody arrangements, fees and potential deviations between the share price and the digital asset’s market price.
Crypto ETFs have their own risks. Source: SEC
Ophelia Snyder, co-founder of asset manager 21Shares, tells Magazine that exchange-traded products make more sense “for most people most of the time” due to “tax, estate planning and security reasons.”
Related: Can crypto users trust the supply chain behind hardware wallets?
However, the “ability to use crypto onchain” and “some risk exposure to the issuer” are among the main trade-offs. She also says that security depends on the provider, and the controls around its wallet infrastructure should be a “major factor” when choosing a product.
Pseudonymous Bitcoin stock-to-flow (S2F) model creator PlanB moved his BTC to ETFs in 2025 and said he was widely criticized for that decision. After the Ledger and Coldcard incidents, however, he said, “Zero regrets of my ETF decision. Peace of mind.”
2. Passkey-based wallets: Move away from seed phrase management
Passkeys let users access accounts with a cryptographic credential stored on a device (typically a phone via Apple or Google passkeys), often protected by a fingerprint, face scan or PIN. Unlike hardware wallets, they don’t require a dedicated device to keep crypto keys offline. Passkeys are more common for chains that have smart contracts.
Some passkey-based options include Coinbase Wallet’s Smart Wallet, Clave and Infinex, with differing designs and recovery options.
While passkeys may provide a smoother user experience, they aren’t a panacea; losing a device or passkey can still create problems, so users should check how backups work and whether recovering access requires trusting a third party.
In June 2024, Adam Back, chief executive of Bitcoin infrastructure provider Blockstream, questioned Coinbase’s Smart Wallet, asking what would happen if a passkey were hacked; “sounds like basically a hosted wallet with a better sales pitch,” he said.
3. Multisig wallets: Split control across multiple keys
As the name implies, a multisignature wallet requires multiple keys to authorize a transaction. In common 2-of-3 setups, three separate signers hold keys, and any two must approve a transaction before funds can move.
Multisig can reduce reliance on a single key or device, but it doesn’t always eliminate the need for a hardware wallet. Casa, for example, offers multisignature custody for individuals and families, with a setup combining a hardware wallet, a mobile phone and a key held by Casa.
PlanB says no regrets moving BTC to an ETF. Source: PlanB
Many of the largest Ethereum ecosystem projects manage their treasuries via Safe wallet (formerly Gnosis Safe) — an on chain smart account multisig with a web based interface.
While that setup can reduce the risk of a single compromised or lost key, multisig arrangements have disadvantages too.
Multiple-person setups, for example, need the signers to remain available, while smart contract wallets can introduce vulnerabilities in their code or configuration, and an attacker who compromises enough signers can still authorize a transaction.
Related: Coldcard says it’s investigating how phishing link appeared on its X account
Coordinating approvals can also slow down transfers, which can be unhelpful when time is of the essence, particularly when signers are in different locations and time zones.
Casa chief executive Nick Neuman told Cointelegraph earlier this month that, even with a multisig setup, users should still spread their risk across multiple providers rather than rely on just one.
4. Centralized exchanges: Let someone else handle custody
Keeping crypto on a centralized exchange transfers the responsibility for private key management to a company and removes most of the burden of being responsible for your own security. It’s certainly more convenient for active traders or holders who don’t want to manage backups and recovery phrases.
But the old refrain “not your keys, not your coins” is particularly pertinent here. Crypto’s short history is littered with incidents of exchange hacks and exploits, from owners taking access to user assets with them to their graves to one of the largest BTC hacks in history, with investors still waiting to recover their coins 13 years later.
Of course, centralized exchange operational security has come a long way, and many now publish proof-of-reserves reports or have emergency funds to help cover losses.
Many centralized exchanges publish proof-of-reserves reports. Source: Binance
That said, proof of reserves doesn’t actually establish a company’s full financial health or ability to meet every obligation.
And with the rise in crypto reporting requirements, including through the OECD’s Crypto-Asset Reporting Framework, exchanges require customers to provide identity, residency or tax information, and failure to comply can lead to account restrictions or suspended withdrawals.
5. Paper wallets: Offline but not necessarily safer
A paper wallet traditionally consists of a cryptocurrency address and its corresponding private key printed on paper.
While paper wallets keep key material offline without requiring a dedicated hardware device, generating one safely can be difficult, as a compromised computer, malicious generator or poor source of randomness can expose the key before it is printed.
And of course, paper can also be easily lost or damaged; you definitely don’t want to smoke a celebratory cigar next to this form of crypto storage (stamping the seed onto metal is a good alternative however). Spending funds can also compromise security if the private key is imported into an internet-connected wallet.
So while paper wallets are an alternative to hardware wallets, for most users, they simply aren’t a better one, and are a poor fit compared with more manageable offline-storage options.
At the end of the day, there is no one ideal way to store your crypto, and for every holder, it will come down to their personal circumstances and needs. As Snyder says:
“Self-custody users have a tendency to be in two camps: either long-term crypto natives who have a strong view on their personal security practices and everyone else.”
If you aren’t in the first group, she says, self-custody may generally not be the best fit for you, and having some crypto on a centralized exchange and an ETF can be “a really useful tool as part of a portfolio approach to holding crypto.”
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