Think of a super safe bank vault for your digital coins like Bitcoin etc. A Hardware wallet is a small physical device, kind of like a USB stick, designed to keep the digital currency safe from any theft. Your crypto is like your secret treasure which needs to be kept safe. Therefore, hardware wallets are used which are like an unbreakable box. Only you have access to the special key to open it. Since they aren’t connected to the internet, they are safe from online scams.
Let us know more about the hardware wallets in this lesson!
1. What is a hardware wallet?
A hardware wallet is a physical device designed to store the crypto private keys offline. It is a small specialized technological device with the only purpose of safeguarding digital assets.
- Cold storage where the private keys used to access and manage your funds are stored on the hardware wallet. The keys do not leave the device as they are offline, making them secure from online hacks.
- Transaction verification is done by connecting the hardware wallet to a computer or a mobile. The transactions are signed by the wallet internally , ensuring that the private keys are never exposed to the internet.
- Since the keys are stored offline, hardware wallets are immune to online scams and phishing attacks which can compromise the software wallets or other mediums of online storage.
- Usually, backup options are provided by the hardware wallets in the form of a recovery code or a seed phrase. It allows the person to recover the funds if the hardware wallet is lost or damaged.
- Hardware wallets are very user-friendly, making them accessible to all!
1.1. An overview of cold storage
Cold storage stands for storing digital assets completely offline! This practice makes them immune to online hacking and scams. It is a very efficient way to store the currency by maintaining the private keys in the offline space.
Several types of cold storage options are:
- Hardware wallets are physical devices designed to store private keys offline.
- Paper wallets involve printing the private keys on paper and storing them in a safe place.
- Offline computers which are not connected to the internet, store the keys offline.
Cold storage eliminates the fear of online hacking and phishing attacks as the private keys are never exposed to the internet. It is ideal for the long-term HODLing of cryptocurrencies as it reduces the risk of online threats.
2. Hardware wallets: Types and benefits
- USB hardware wallets: They are compact,portable devices which connect to the computer via USB. They are known to provide excellent security by storing private keys offline. They are very user-friendly! Examples are Ledger Nano S and Ledger Nano X.
- Bluetooth wallets: The bluetooth wallets like the Ledger Nano X provide wireless connectivity to your phone, making it very easy for the management of the crypto assets on-the-go.
- Smart card hardware wallets: These resemble a credit card and are highly portable. They offer security features like PIN protection and two-factor authentication. CoolWallet S is an example of a smart card wallet.
- Metal wallets: These are physical plates with engraved private keys. They are offline and highly durable!
- Multi-signature wallets: Some hardware wallets support the multi-signature facility, allowing multiple private keys to be associated with the transaction authorization. It adds an extra layer of security!
- Open-source wallets: These wallets provide transparency as their design and software codes are accessible for inspection. It enhances trust and credibility!
- Coin-specific wallets: These wallets are devised for specific tokens, optimizing their functionality for the assets. For instance, Trezor Model T handles a wide variety of tokens in one place.
3. Hardware wallets vs Software wallets
|Private key storage
|The wallet which stores key in an offline, physical space
|Wallets which store the information in an online space
|The device is not connected to the internet, hence it is safe from online hacks
|They are connected to the internet and are prone to frequent hacking attacks
|The ones who wish to store digital assets with high level of security
|Small traders who wish to make quick transactions
4. Pros and Cons
- They are one of the most secure ways to store the crypto. Private keys are stored offline, making them safe from online hacks.
- They are safe from phishing attacks as the transaction details are displayed on the device’s screen , reducing the risks of fraud.
- They are user-friendly, making them accessible to all!
- They provide backup options like recovery codes or seed phrases , allowing us to recover funds if the device is lost or ruined.
- They support a wide range of currencies offering a convenient way to manage different tokens in one place.
- They are very suitable for long-term storage due to their high level of security.
- They have an upfront, direct cost which might not be suitable for some users.
- They are physical devices which can be lost, damaged or stolen. It is important to protect them!
- They require efforts in initial setup, creating and storing the backup safely.
- This makes accessibility difficult as the device needs to be connected to the computer to access funds, unlike easy-to-use mobile wallets.
- If the access and backup phrases are lost, one might lose permanent access to the hardware wallet.
5. Step-by-step guide to set up the hardware wallet
- While unboxing the hardware wallet, make sure all the components are there, including the USB cable, etc.
- Connect the wallet to the computer using the USB cable.
- Power on the device by following the instructions in the user manual.
- Create a new wallet by following the on-screen instructions. It involves generating the seed phrases which serve as a backup for the wallet.
- Write down the seed phrase on the provided recovery sheet which comes with the wallet. Store it in a secure place.
- Verify the seed phrase by selecting the words in the specified order.
- Set a PIN to access the wallet. Choose a strong PIN for the same.
- Install the wallet software by visiting its official website and downloading the software on the device.
- Connect the hardware wallet to the device by following the on-screen details.
- Transfer the funds to it by following the wallet software’s security guidance.
- Safeguard the wallet in a secure space which is waterproof and fireproof.
- Regularly update the firmware as it keeps the wallet secure against potential threats.
6. A guide to 2023’s best hardware wallets
- Ledger is the world’s most popular hardware wallet. It supports more than 5,000 tokens. The cheapest model of Ledger, the Ledger Nano S Plus costs $79.
- Trezor is another popular name in terms of hardware wallets. It is one of the cheapest in the market. It supports around 1,000 currencies. Unlike Ledger, Trezor does not work with hot wallets.
- KeepKey is sold for as low as $49! It supports around 40 cryptocurrencies.
7. Final thoughts
The crypto space keeps finding ways to secure users from the rising cases of thefts and scams. Hardware wallets are one of the best ways to keep assets off the internet. They are safe to use. However, one needs to be fully aware and trained to use them with utmost care.
Hardware wallet is a physical device which is used to store the private keys offline to avoid any internet theft or scam.
In comparison to the software wallets, hardware wallets are the safer options as they are considered to be the most secure ones, storing the data offline.
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