So you want to know the benefits of cryptocurrency hardware wallets? Then you’re at the right place! Due to the immutable and partially anonymous nature of cryptocurrencies, hacks and theft are not at all uncommon, hence, why it is important for you to know how to store your digital assets safely. In this article, we will dive into the 5 main benefits of cryptocurrency hardware wallets, and some tips to keep your hardware wallet safe.
What we cover in this guide:
- What is a cryptocurrency hardware wallet
- How do cryptocurrency hardware wallets work?
- Benefits of cryptocurrency hardware wallets
- Tips for using a hardware wallet
- Important: Best cryptocurrency hardware wallets
What is a cryptocurrency hardware wallet?
Cryptocurrency hardware wallets are the safest way to store cryptocurrencies like Bitcoin, Ethereum, or Ripple. These are physical devices that are specifically built to store private keys which are used to secure crypto assets. Unlike traditional crypto wallets which can be used to hacked into or attacked with a virus, a hardware wallet can be used to go online whenever you want to make a transaction, and then be taken offline to facilitate portability and maximum security.
Some of the most trusted cryptocurrency hardware wallets are – Ledger, KeepKey, and TREZOR.
How do cryptocurrency hardware wallets work?
A cryptocurrency wallet, unlike a regular wallet, doesn’t contain cryptocurrency but the public and the private key, which you need to access your cryptocurrency.
For instance, if you are dealing in Bitcoin, then your coins will still be stored on the Blockchain, and not in the actual wallet. Whereas, your access keys – the public key i.e. the digital code which is publicly connected to the bitcoins you own, and the private key i.e. the secure digital code which links your public key to you; will be stored on your cryptocurrency wallet. So, you can use your wallet to send and receive bitcoins, while also maintaining a personal ledger of transactions.
Cryptocurrency Hardware Wallets work like a safe box for your cryptocurrency. This means that the only way to access your crypto assets will be through the public and the private key stored on your hardware wallet. On setting up the device, you have to set a pin that you will need to access your hardware wallet. As soon as you initiate the device, it generates for you a 24-words seed or passphrase that you can use to retrieve your funds in case your Hardware Wallet is damaged or stolen.
Benefits of a Cryptocurrency Hardware Wallet
Using a cryptocurrency hardware wallet comes with several benefits that traditional wallets do not have, let’s explore some of them.
Private Keys remain unexposed
The only place you will be required to put in your private keys is your hardware device. Since your private key does not reach your computer, it is not exposed to being hacked or copied.
Pin Encryption increases security
An encrypted pin protects the hardware wallet. This pin is generated by you and is known only to you. If anybody tries to forcefully activate the device by trying in different pins, the device will self-destruct after the third wrong pin entry. The public and private keys on the device will be deleted to ensure the safety of your funds.
Hosting multiple Cryptocurrencies on the same wallet
Cryptocurrencies are not physical things that actually require space, therefore, there is no limit to how many cryptocurrencies your wallet can hold. Some Hardware wallets can hold multiple cryptocurrencies like Bitcoin, Ethereum, and Ripple simultaneously.
Immune to Computer Viruses
Since most viruses are designed to attack system software, they are ineffective on your hardware wallet. Hardware wallets cannot be attacked like software wallets and therefore, they are your safest option when it comes to cryptocurrency wallets.
Verification on the Hardware Device
You have to verify your transaction through your hardware wallet and not online on the computer. Therefore, nobody can make transactions without having access to your device. As long as you keep your device safe, you can rest assured that there will be no tampering with your funds.
It’s important to keep in mind that just because a device calls itself a “cryptocurrency hardware wallet”, does not mean that it is completely secure. You might be aware of the Bitfi bounty offered by John McAfee to anyone who is able to hack into the “world’s first unhackable wallet”.
When a group of hackers actually gained access to the Bitfi Wallet by ‘backdooring’ the device to send the recovery phrase and the user’s seed to a remote server, thus effectively placing any funds connected with that wallet at risk, McAfee took to debating about the very definition of the word ‘hacking’.
Similarly, lack of knowledge about cryptocurrency hardware wallets makes the unsuspecting users prone to being hoodwinked by schemers. Like the incident that happened earlier this year when a user received on his purchase a previously initiated device, with the seed words on a recovery sheet. As soon as the user stored funds in his wallet, the schemer used the seed words already generated to retrieve the stored currency.
These scams can be avoided if you ONLY purchase cryptocurrency wallets from trusted vendors like Ledger, and ONLY from their official homepage.
Tips for using a cryptocurrency hardware wallet
Finally, before wrapping this article up, let’s dive into some usability and security tips to keep in mind when using a cryptocurrency hardware wallet.
Use a Safe Pin and Memorize it
The pin that you input while setting up your device is extremely important. Select a pin that is not easily guessable. Memorize it because you will need it to get access to your hardware device. If needed write it down and keep it in a safe location.
Keep your Recovery Words safe
The 24 words that your hardware device will generate for you, is how you can regain access to your device if it is lost, stolen or damaged. In the wrong hands, it can cost you all your funds as they can be used to retrieve funds to a remote server. So, keep the paper with the seed words somewhere safe like a bank lockbox.
Split your funds into two hardware wallets
Do not put all your funds in one wallet. To be on the safer side, divide your total funds into two or more parts, as many as you are comfortable with, and store them across different hardware wallets. This will ensure that even if one of your wallets is compromised, you will not lose all your assets as you have divided them previously.
Keep your Hardware Safe
Just like you keep your actual cash wallet safely, away from prying eyes, so you need to keep your Hardware Wallet at a safe space. Since, you do not need to carry it around with you all the time, keep it in a safe place, yet someplace where you can access it whenever you want. Don’t go about mentioning your hardware wallet to everybody. The easiest way to keep it safe is to keep it secretly hidden.
Important: Best cryptocurrency hardware wallets
You shouldn’t buy a cryptocurrency hardware wallet before first checking our comparison table of the best hardware wallets.
CoinDiligent Staff Writer