The traditional approach is good if you have existing SSH and GPG keys that need to be moved onto an HSM. I'll definitely prefer the deterministic wallet approach for new keys though. It's not that bad to migrate to new SSH keys but GPG tends to make rotating keys very painful.
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Signing keys for firmware usually can't be rotated at all since they're burned into fuses so that's another case where a more traditional HSM is the best option since existing keys need to be migrated. Android app signing keys were similar, but they've finally added key rotation.
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I really like the - code has been audited by so that is a huge plus in my book, and there's tons of eyes on the code as maintainers use them as well. Nothing against - they are an incredible company and I use their devices for btc
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Entering a password on device (like you mention) is a big plus for Trezor though, as is their open CPU. (What smart card does nitrokey use?)
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I find the recovery model to be the biggest advantage of the approach based on deterministic wallet design. The hardware wallet generates a high entropy seed, displays it as a recovery phrase and you can write it down, store it and recover without exposing it to the computer.
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I need backups for my keys. For a traditional HSM, that means I need to generate them on my computer, back them up onto cold storage and import them onto the HSM. If I ever need to do recovery, I need to expose them to a general purpose computer again too. That's problematic.
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Why? You can use a completely non-connected computer, even wipe or physically destroy it afterwards if needed. Risk only arises if there's an exfil channel available after the restore op.
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It's an issue for the initial key generation rather than just recovery since you're forced to do it on a computer and trust that it's generating the keys properly due to needing to back them up onto cold storage. It's very difficult to wipe all state on a general purpose PC too.
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I greatly prefer only trusting only the HSM and having a physical backup of the seed recorded directly from it. The approach to passphrases is also really nice. Trezor *only* stores the seed, not any state for wallets, SSH/GPG keys, etc. which are derived from seed + passphrase.
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If it dies, I can do recovery on a new one (or a compatible implementation) by entering my recovery seed into it directly and I'll have back all of my wallets and keys. I also really like that I could quite feasibly memorize a recovery seed since it's 12 / 18 / 24 common words.
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Satoshi Labs (Trezor) got the recovery seed and deterministic wallet approach standardized, so there are a lot of compatible options available. The trezor-agent project providing SSH / GPG support also appears to support some other devices like Ledger models too.
If I wanted to transport keys across a border, I'm confident that I could memorize a 12 word recovery phrase, which is the 128-bit security level. Bitcoin and ed25519 have an 128-bit security level anyway. Using 24 words is useful to split physical backups into two pieces though.
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