A hardware wallet is a physical electronic device that has been designed with one goal in mind: keep your cryptocurrency funds safe by securing your private keys. The main idea behind a hardware wallet is to isolate your private keys from being stored on any online devices such as your computer or smart phone. This is because any device that is regularly accessing the internet has a higher chance of being compromised by a hacker.
We have written about the different types of Cryptocurrency wallets before, how you should choose your option carefully for your own crypto requirements - if you should be using a hot wallet or a cold wallet. Remember in crypto you are responsible for your own security which means safety starts with how you use your wallet.
One of the key points we raised with using hardware wallets was that with their high security came a certain difficulty of use - for example, Ledger has only recently added support to managing your Ethereum tokens natively. Now we are 2 years later, and times have changed! Multiple hardware wallets have different interfaces to interact with them easily. Our own Saturn Wallet supports connecting your Ledger or Trezor device natively, which makes managing your ETH, ETC, or tokens stored on wallets created by hardware devices now extremely easy.
Why are hardware wallets considered safer?
You could draw a parallel with how Compartmentalization works in information security, which is the process of limiting access to information on a need-to-know basis only when required to perform certain tasks. The fewer people that know the details of a mission or task, the likelihood that such information falls into the wrong hands decreases. It is the principle of isolation, in crypto we generally refer to it as cold storage, and the information that you need to keep secure is of course your private keys.
When using a hardware wallet, it is important to understand your private keys never leave the device, even when you are signing a transaction. Which is why even in a scenario where your computer or smart phone is infected with malware or a virus, your hardware wallet would still keep your private keys secure (even when connected to the infected device). This is because the entire transaction validation process is done on the HW device itself and not on your computer.
Here is a very simple description of how it is done:
- When you get to the point of signing a transaction to make a payment, your hardware wallet will request the payment details such as the amount and the receiving address. This would be provided by the software running on your computer such as a dApp browser.
- Once the hardware wallet receives the payment details, it will ask for the user to confirm the transaction on the device. Usually this requires clicking a button or entering a PIN code, which will sign the transaction. It then sends the signed transaction back to the software running on your computer, which will complete the transaction (broadcast it to the network).
The reason HW crypto wallets are seen as one of the most secure options for managing your various cryprocurrency funds is because your private keys are being stored offline. This means for a hacker to gain access to them they would need to physically steal your hardware wallet, and even then, they will need a PIN code to unlock your device. Furthermore, the device itself is heavily encrypted running operating systems that are engineered for their security capabilities.
What hardware wallets are available?
Here we will take a quick look at the various hardware wallets that are currently available on the market. If you are interested in Ethereum or Ethereum Classic, then we would recommend picking a Ledger or a Trezor as they are the most widely supported when it comes using dApps such as our HODL2020 program or MakerDAO.
The Ledger Nano S was first released in August 2016 and has built a reputation as a solid and reliable hardware wallet ever since. They are now seen as one of the innovators in this space, leveraging their proprietary technology to develop crypto security and infrastructure solutions across numerous levels. One of their upcoming products will be a hardware wallet for banks or hedge funds that want to invest in crypto - called Ledger Vault. Ledger have several different products, with the Ledger Nano S now starting at $59, they are a great choice for any level of crypto user.
Their Ledger Live software makes it extremely easy to manage your portfolio supporting numerous different types of coin such as Bitcoin, Bitcoin Cash, Ethereum + ERC20 tokens, Ethereum Classic, Litecoin, Zcash and many more.
Trezor holds the claim to the first ever hardware wallet that entered the marketplace, being released in 2014 and created by SatoshiLabs. As a result the Trezor One is one of the most popular devices being used today, costing around $100. Trezor supports all of the major cryptocurrencies, along with all ERC20 tokens on Ethereum.
One feature that keeps Trezor devices secure is that the PIN system has an in-built defense against brute-force attempts. This works by raising the wait time between guesses when an incorrect PIN is entered, making 30 guesses take 17 years.
KeepKey was founded in 2015 by Darin Stanchfield, and orginally it was developed to work closely with the Bitcoin wallet Multibit. KeepKey is one of the largest hardware wallets and as result one of the heaviest, offering the same security features as a Trezor or Ledger. More recently they were acquired by ShapeShift in 2017, and become a more robust hardware wallet supporting numerous different types of coins. It seems the change in ownership also allowed a drop in price to $49(from $130!).
Their new software used to manage your cryptocurrency portfolio can work hand in hand with ShapeShift to buy and sell crypto instantly - though note that to activate these features you would need to pass KYC on your account.
The importance of security and managing your crypto funds responsibly can not be understated. In a world of decentralized finance tools, you will become your own bank, so you can never become lax on security. I am sure you do not just leave your credit or debit card sitting around in plain sight, the same applies to your private keys.
Which comes to our final point, when buying a hardware wallet: only ever use the product's official website to make your purchase. Each of the hardware wallets outlined above is a good option, providing one of the safest ways possible for storing and protecting your cryptocurrency funds but if you do not buy them from the official vendor then you risk the device being tampered with before your first use.
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