Hardware Wallets – Securing Your crypto
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Cryptocurrencies such are digital currencies that are used to pay for various goods and services. Cryptocurrencies work in the very same way as paper money with a few key differences. Unlike the use of paper money, crypto eliminates the need for a third party during transactions.
Everywhere I go, Bitcoins among other cryptocurrencies have become the talk of the town. It is commonly assumed that cryptocurrencies are the future of money as they offer more transparency in a transaction process. Additionally, they eliminate the need for third parties who make transactions expensive.
If you are walking with a few dollars in your pocket, you must be probably having them in your wallet. The wallet helps you to easily account for the money while at the same time offering protection against wear and tear as well as displacement.
In a similar manner that I need a physical wallet to protect my dollars from various risks; I also need a hardware wallet to protect my crypto coins against various security threats. Hardware wallets are physical devices created to keep my cryptocurrencies safe.
All you need to know about hardware wallets
What is a hardware wallet and what hardware wallet means?
Hardware is the physical component of a computer system; it is the physical aspect of computers, telecommunications, and other devices. A hardware wallet is a USB device detailed with a closed security system that contains a user’s private keys.
If I am a cryptocurrency user or investor, purchasing a Physical crypto wallet allows me to keep my crypto investments as safe as possible while still being able to access them.
How do hardware wallets work?
If I carry out a transaction in Cryptocurrencies, it will be in the form of a message stating that ‘I transferred coins from address X (my address) to address Y (my colleague’s address). If any other person can be able to create a similar message, they can spend my coins. That is why my message is only accepted if it is accompanied by a digital signature. The digital signature must be created by a private key associated with my address (X). To create this transaction, I will have to use a software called a wallet. My wallet keeps track of all my addresses and their associated private keys. Every time I want to spend my crypto, my wallet creates a message instructing the transfer of crypto coins. It then uses the private keys it has to create digital signatures. If I store the private keys to my Wallet on my computer’s hard drive and use a software on my computer to create digital signatures, the security of my computer might be compromised thereby making my coins vulnerable to manipulations by malicious parties.
Even if my private keys are encrypted, a malware can be installed on my computer by malicious parties and go undetected; this they can use to steal my password and gain access to my coins hence stealing them. A Physical crypto Wallet (Crypto Hardware Wallet), protects against this particular threat. It enables me not to keep my private keys on my computer but instead offloads them to a dedicated device.
This is how crypto hardware wallets minimize the chances of malware getting hold of my private keys.
Despite having a crypto Physical Wallet, the software on my computer will still perform most administrative tasks during my various transactions. Nonetheless, whenever a digital signature needs to be created, the unsigned message is sent to my Hardware Wallet. I can then view the transaction on the display of my hardware wallet to verify if all the details are correct. If all is well, my physical hardware wallet will create a digital signature and send it to the software on my computer, which will further process the transaction and submit it to the blockchain network.
What is the difference between hardware wallets and other kinds of wallets?
A private wallet can be linked to PayPal or Payoneer. It is a digital wallet for storing, transmitting, and protecting cryptocurrencies.
Since private wallets are more of applications, they are subject to the security of the operating system that runs them. This means that any malware attacks can compromise the integrity of the private wallets; which gives attackers an easy platform for sending your crypto coins to their own addresses.
Paper and Hardware wallets remedy the security threats faced by private wallets. They achieve it by eliminating the private keys from the computers since malware can only access the computers.
Paper Wallets simply have the private keys printed on paper. One disadvantage of paper wallets is that spending your coins will involve inputting the private keys back into your computer, where they might be vulnerable.
Hardware wallets for cryptocurrencies improve storing them to a whole new security level. They are very small computers (USB like devices), designed to store the private keys. The software on the hardware wallets does not allow any additional software to be installed in them except those storing the private keys. Additionally, the private keys never leave the devices whenever any transactions are made.
Examples of cryptocurrencies hardware wallets
Digital BitBox is a minimalist Bitcoin hardware wallet which is physical. It comes with the advantage of; uncomplicated backup and recovery using a Micro SD Card; managing multiple wallets on one device; optional manual generation of wallets by your own data; as well as, compatibility with Tor, Tails, OS and U2F. Additionally, it is subtly designed, giving you break from unwanted attention.
There are four types of the Ledger Hardware Wallet which include Ledger HW.1, Ledger Nano, Ledger Nano S, and Ledger Blue. HW.1 Is the oldest while Blue is the latest. Ledger Blue supports multiple currencies, is flexible as it runs other apps on top of the firmware, has Bluetooth connectivity, and is touchscreen. Its only disadvantage is its large size and price.
Trezor is one of the oldest hardware wallets. They have an easy to operate touchscreen interface and can be used with any computer. Nevertheless, they are conspicuous in size and shape and can, therefore, arouse suspicion.
Coolwallet is a credit card sized hardware wallet. It gives users the ability to spend their crypto using different methods including NFC (Near Field Communication) or Bluetooth. Its credit card size makes it more of a daily commerce device, setting it apart from other hardware wallets.
Keepkey is the largest hardware wallet as it supports the largest number of cryptocurrencies including Bitcoin, Litecoin, Namecoin, Dogecoin, Dash, and Testnet. It is one of the most beautifully designed hardware wallets currently on the market. It is however pricey compared to other wallets.
What is the difference between hardware wallets and hot wallets?
If you are familiar with crypto, you must have come across the terms cold wallets and hot wallets. Hardware wallets are what are referred to as cold wallets in other terms. On a different note, hot wallets are commonly referred to as private wallets.
The key difference between these two kinds of wallets is the internet. If a wallet directly connects to the internet, then it’s hot. Consequently, if a wallet is free of the internet, then it’s cold. Hot wallets are useful for placing crypto assets that you want to spend or trade, whereas cold wallets are reliable for placing crypto assets that you do not want to spend often.
Are there other kinds of storage wallets?
Apart from private and hardware cryptocurrencies wallets, we also have a desktop and mobile wallets. These are a great option for anyone frequently sending cryptocurrencies such as Bitcoins from their computers or different mobile devices. In case you do not need a super secure storage for your cryptocurrencies, you can always opt for desktop and mobile wallets.
Advantages of desktop and mobile wallets
- They are easy to acquire and maintain since they are software applications that only need to be downloaded and installed.
- They do not arouse suspicion, unlike hardware wallets which are physically unique.
- Desktop and mobile wallets cannot be lost since they are not physical in nature. In case a user forgets their passwords, they can mostly be retrieved.
- They are convenient to use, especially since desktop computers and mobile phones are readily available to most users.
Disadvantages of desktop and mobile wallets
- Desktop and mobile wallets face the greatest security threats, especially hacking since they store their private keys. Users can, therefore, lose their currencies in case a successful breach is carried out by hackers.
How to use hardware wallets
Since Trezor is the oldest hardware wallet and one of the most popular, I will use it in my demonstration on how to use hardware wallets.
- First I will have to connect my device to my computer via a USB cable.
- I will then go to my Trezor and download a browser plugin.
- Once the plugin is activated, my Trezor will prompt me to choose a PIN.
- After choosing my pin, I will have to write down a randomly generated sequence of 24 words know as seed.
- The seed allows me to reconstruct my Trazor Wallet if I happen to lose my device. Additionally, it is the only backup that I can use to recover my wallet in case of loss or theft.
Adding a coin to hardware wallets
- First, I will have to select the ‘Receive’ tab to get my cryptocurrency wallet Address.
- When someone makes a payment to me, I will see an incoming transaction appear in the transaction pane.
- The transaction will be marked ‘unconfirmed at first’ and thereafter replaced by date and time upon completion.
Making payments with hardware wallets
- I will have to look for the ‘send’ tab to be taken to the payment page.
- I will then enter the destination cryptocurrency wallet address followed by the amount I am sending.
- I then have to press ‘send’ and enter my pin.
- This is finally followed by confirming the transaction on my hardware wallet. I can watch outgoing transaction progress by switching over to the transaction window.
List of Hardware Wallets That We Reviewed:
To sum it up
Cryptocurrencies being the future of money means that they will increasingly be vulnerable to various threats, especially matters pertaining to theft. To securely manage your Cryptocurrencies transactions, it is important that you guard your private keys in a device that cannot be accessed by malware; the hardware wallets have proved to be the safest platforms for managing cryptocurrencies transactions since they are the only ones so far capable of keeping the private keys separate from the vulnerable software.
Apart from hardware wallets, there are other forms of wallets which you can learn about on our site. We are glad that you are now well versed with hardware wallets, you are welcomed to learn more about other topics that pertain to cryptocurrencies. Thank you.