Hardware wallets are normally small devices which look a bit like a USB storage drive and are designed to securely store your private keys from your cryptocurrency offline. They are considered a lot safer than smartphone or desktop wallets, mainly because they do not connect to the Internet at any point.
A good hardware wallet ensures that private keys never leave the device and since hardware wallets are offline at all times, they must be used alongside another machine normally via the usb port with a small usb cable.
Because of the way they are built, they can be plugged into infected PC’s, laptops, or smartphones without any risk of the private key leaking. From there, they interact with an app / software which allows the user to view their balance or make transactions. Below are two of the most popular hardware wallet types on the market. The Trezor One and the Ledger nano S. Both of these devices have newer versions available which are slightly more expensive with enhanced features but essentially do the same job.
Why use a hardware wallet?
Other types of wallets which are web or app-based wallets, store private keys on internet-connected desktop PC’s or laptops or smartphones leave users’ funds vulnerable to a wide range of attacks. Malware can detect crypto-related traffic on these devices and can eventually drain the users’ wallet. A hardware wallet is like an impenetrable vault.
Even if someone manages to get a hold of your hardware wallet, you will have additional protection in the form of a PIN code and / or a password and the thief would need your 24-word passphrase. In addition, these devices will have added functionality of being able to reset the device if the incorrect PIN / passphrase combination is entered a certain number of times and the device will become wiped.
In addition, if your cryptocurrency funds are not being actively used on a regular basis then they should be kept in what is called “cold storage”. These Hardware wallets are protected by a 24-word seed passphrase and a PIN code.
What are the pro’s and con’s of using a hardware wallet?
Cryptocurrency hardware wallets combine the best of both worlds: usability and security. Unlike online web and app-based wallets, private keys in hardware wallets are stored completely offline. Furthermore, unlike paper wallets, hardware wallets contain special microprocessors ensuring your cryptocurrency funds are secure, even when wallets are connected to malware-infested computers.
Additionally, transacting via hardware wallets is becoming more user intuitive making hardware wallets viable for users who transfer crypto on a frequent basis.
However, like all methods of cryptocurrency storage, hardware wallets also have their drawbacks. A significant drawback to hardware wallets is their cost. Hardware wallets are not free due to the cost associated with the hardware and research & development. However, for the additional security hardware wallets provide, purchasing a hardware wallet is recommended.
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By Brian Mackay – Cyber security consultant for The Scotcoin Project CIC