Five Bitcoin Storage Alternatives to Hardware Wallets: ETFs, Passkeys and More
Recent thefts and security failures have sharpened a practical question for crypto holders: how much responsibility should one person take on for protecting private keys? More than $200 million in crypto was reportedly stolen in recent months from tampered Ledger devices and Coldcards whose seed generation wasn’t truly random. Those incidents show that careful users can still face risks tied to products and their supply chains.
Physical threats add another concern. The source reports a wrench attack in France every 2.5 days this year, while lost wallets and forgotten seed phrases remain familiar causes of permanent loss. Hardware wallets are one way to hold crypto, but they don’t remove every risk. Other arrangements shift the burden to custodians, software, multiple signers or paper. Each brings its own failure points, so spreading holdings across methods can limit the damage if one is compromised.
ETFs exchange direct ownership for simpler custody
A crypto exchange-traded fund can remove the day-to-day work of storing a seed phrase, maintaining wallet backups and guarding a device. But it isn’t a wallet: an investor holds shares in a financial product whose assets are held by a custodian. That gives the investor a claim on the fund’s net asset value in dollars, not direct control of Bitcoin.
The convenience comes with trade-offs. Investors rely on a centralized provider and its custody arrangements, pay fees, and may see a gap between the fund’s share price and the market price of the underlying asset. They also give up the ability to use the Bitcoin onchain.
Ophelia Snyder, co-founder of asset manager 21Shares, told Magazine that exchange-traded products make more sense “for most people most of the time,” citing “tax, estate planning and security reasons.” She said a provider’s security depends on its wallet infrastructure and that the controls around it should be a “major factor” in choosing a product. Crypto custody also carries risks for investors.
Pseudonymous Bitcoin stock-to-flow model creator PlanB said he moved his BTC to ETFs in 2025 and was widely criticized for the decision. Following the Ledger and Coldcard incidents, he said, “Zero regrets of my ETF decision. Peace of mind.” His experience captures the appeal: an ETF may reduce the personal burden of key management, while adding dependence on an issuer.
Passkeys make access familiar, but recovery matters
Passkeys let users access accounts with a cryptographic credential stored on a device, often a phone. A fingerprint, face scan or PIN can unlock access. Unlike a conventional hardware wallet, this approach doesn’t require a dedicated device to keep crypto keys offline. Passkey-based products are more common on chains that support smart contracts.
Coinbase Wallet’s Smart Wallet, Clave and Infinex are among the options, with different designs and recovery arrangements. The interface may feel simpler, but the important question is what happens when a phone or passkey is lost, damaged or compromised. Users need to understand how backups work and whether getting access back depends on a third party.
In June 2024, Adam Back, chief executive of Bitcoin infrastructure provider Blockstream, raised doubts about Coinbase’s Smart Wallet. Asking what would happen if a passkey were hacked, he said it “sounds like basically a hosted wallet with a better sales pitch.” That criticism points to the distinction that matters: a familiar sign-in method doesn’t, on its own, explain who controls recovery or what happens after a breach.
Multisig spreads approval across keys
A multisignature wallet requires more than one key to authorize a transaction. In a common 2-of-3 arrangement, three signers each hold a key and any two must approve a transfer. This reduces dependence on a single device or key, though it doesn’t guarantee that funds are safe.
Some multisig systems still include a hardware wallet. Casa, for example, offers individuals and families a setup combining a hardware wallet, a mobile phone and a key held by Casa. In the Ethereum ecosystem, many large projects manage treasuries with Safe, formerly Gnosis Safe, an onchain smart account with a web-based interface.
The arrangement creates operational work. Signers need to be available, and approvals can slow transfers, especially when people are in different locations or time zones. Smart contract wallets can have flaws in their code or configuration, while an attacker who compromises enough signers can still authorize a transaction. Casa chief executive Nick Neuman has advised users to spread their risk across multiple providers, even when using multisig.
PlanB says he has no regrets about moving BTC to an ETF. Source: PlanB
Exchanges take key management off the user’s hands
Keeping crypto on a centralized exchange is convenient for active traders and for people who don’t want to manage recovery phrases or backups. The company holds the keys, which shifts responsibility away from the customer. The familiar warning still applies: users depend on the exchange to safeguard assets and provide access when requested.
Exchange failures have taken many forms, from operators who died with access to customer funds to hacks that left investors waiting years for repayment. The history includes a major Bitcoin theft whose customers were still waiting to recover their coins 13 years later. Exchange security practices have developed since earlier failures. Some firms publish proof-of-reserves reports or maintain emergency funds.
Proof of reserves has limits: it doesn’t show a company’s full financial health or establish that it can meet every obligation. Customers also provide identity, residency or tax information to exchanges. With reporting frameworks such as the OECD’s Crypto-Asset Reporting Framework, failure to meet an exchange’s requirements can result in account restrictions or suspended withdrawals.
Some centralized exchanges publish proof-of-reserves reports. Source: Binance
Paper keeps keys offline but demands careful handling
A paper wallet traditionally puts a crypto address and its private key on a printed sheet. It can keep the key offline without a hardware device, but creating it safely is difficult. A compromised computer, malicious generator or weak source of randomness could expose the key before it reaches the printer, as the Bitcoin developer guide explains.
Then there’s the paper itself: it can be lost, damaged or destroyed. Metal backups can withstand more than paper, but don’t solve the risks involved in generating the key. Spending from a paper wallet can also undermine its offline security if the private key is imported into an internet-connected wallet. For most users, paper is a difficult option to manage safely.
Match custody to the way you use crypto
No method covers every need. ETFs trade direct ownership and onchain use for simpler custody. Passkeys make account access familiar but put recovery design in focus. Multisig divides control among signers, with coordination and software risks. Exchanges handle keys on the customer’s behalf, while paper wallets require careful creation and protection.
The practical choice depends on how much time a holder can devote to security, whether onchain access matters, and how comfortable they are depending on a provider or other people. Snyder’s view is that for people who aren’t suited to self-custody, an exchange and an ETF can be “a really useful tool as part of a portfolio approach to holding crypto.” The wider lesson is to assess each method’s failure points and avoid making one device, company or signer the sole point of access.
Related: Can crypto users trust the supply chain behind hardware wallets?
Related: Does the Coldcard attack mean all hardware wallets are now insecure?
Related: Coldcard says it’s investigating how a phishing link appeared on its X account
Magazine: ‘Bunker mode’ won’t protect your crypto, critics say
The reported physical attacks on crypto holders in France
The case of an exchange founder who died with access to customer assets
