Hardware wallets are regarded as the most secure among all types of crypto wallets. But you may wonder what a hardware crypto wallet is and how it works.
A hardware wallet is a device, usually a hard disk or a USB stick, where you store private keys. It is an offline device, this is why it is difficult to hack it, and this is why security is one of the main benefits of hardware wallets.
Why do you need a hardware wallet?
Many people think that they store cryptocurrencies in hardware wallets. But it is incorrect. Hardware wallets do not store cryptocurrency, they store private keys. You use private keys to access and manage your crypto that is stored on a blockchain.
It is important to protect your private keys because, with it, you protect cryptocurrencies that you own.
How Does a Hardware Wallet Work?
Now, let us have a look at how a hardware crypto wallet works.
Your cryptocurrency is stored on a blockchain, but you need somehow to access and manage it. You can do it through a hardware wallet.
You store public and private keys in a hardware wallet. You can share public keys to receive money, but you mustn’t share your private keys. You use private keys to access your crypto and sign transactions with a hardware wallet. To do it, you connect a hardware wallet to a computer. Then, the transaction is exported to the wallet and signed. After that, the transaction is again moved to the blockchain and broadcast to the entire network.
The best thing is that private keys never leave the wallet.
How to Use a Hardware Wallet
You may find it difficult to set up a hardware wallet and manage cryptocurrencies via a hardware wallet. The process depends on a wallet and slightly differs in different hardware. Here are some common steps, but be extra careful when setting up the wallet and follow all instructions that a setup wizard provides.
- Buy the device and install the software.
- Connect the wallet to a device that comes online.
- Follow the provided instructions to initialize the wallet.
- Send cryptocurrency.
For sending cryptocurrencies from a hardware wallet, you pick the Send option and confirm the transaction.
To receive cryptocurrencies in a hardware wallet, you share your public keys.
What Happens if a Hardware Wallet Breaks Down
You may wonder how to restore access to cryptocurrencies if your wallet breaks down. When you set up the wallet, you will get a seed phrase. You use this seed phrase for restoring a hardware wallet.
But what to do if you lose a hardware wallet?
You can opt for recovering data from a hardware wallet with a seed phrase. Most hardware wallets allow you to access your coins by using a seed phrase with a software wallet.
Software Wallet vs Hardware Wallet
Public keys
- Software wallets store public keys online.
- Hardware wallets store public keys offline.
Security
- Software wallets are online, and as such, they are much more frequently targeted by hackers.
- Hardware wallets are not connected to the internet, they are very secure.
Need for tech knowledge
- Software wallets have user-friendly interfaces, suitable for newbies.
- Hardware wallets are more complicated to use, more suitable for users with some experience.
Purpose
- Software wallets are suitable for frequent activities such as trading. They are connected to the internet and you can swap coins fast.
- Hardware wallets are fine for storing crypto in the long term. If you want to swap coins, you need to connect to the internet first. It makes the process slower.
Which Is Better: Software or Hardware Wallet?
If you are choosing between a software and hardware wallet, check the differences between software and hardware wallets, and the pros and cons of a hardware wallet. Also, decide if you want to use it for trading or for storing your coins.
The Best Hardware Wallets
Here is the list of the most popular hardware wallets with their short description.
Ledger
Ledger is one of the best wallets. It supports thousands of cryptocurrencies, staking, and NFTs. It offers access to DeFi. But it has a history of a security breach and its software is not open-source and you cannot review it.
Recent models of LEdger have a sensor screen. This is why you can use it easily.
Trezor
Trezor was developed by Satoshi Labs and is one of the safest wallets. You can store there thousands of cryptocurrencies. You can use Trezor with a Trezor web wallet or mobile wallet, or you can use a desktop app. This is very comfortable and you can choose any option you like.
KeepKey
You may use KeepKey to store Bitcoin and many other cryptocurrencies. It has a lot of features and is easy to use. It has a screen in contrast to many other wallets which offer it only in advanced versions.
How to Choose a Hardware Wallet
You shall read reviews of hardware wallets on reliable resources such as TrustPilot. Check the wallets’ features, their safety level, and the history of security breaches. If you see that a wallet was compromised, check how it handled the issue and if user funds were stolen.
Ask customer support or read about recovery options if your wallet gets damaged or lost. Check what other users say, and read reviews. Compare the prices of the best wallets, and pick the one you like.
Recommendations to Boost Your Hardware Wallet Security
Follow these cryptocurrency protection tips to keep your crypto safe.
- Find a very safe place for the seed phrase storage. Never share your seed phrase with third parties. Your seed phrase is access to your crypto. If you lose it, you lose your money.
- We recommend updating the hardware wallet firmware (this is not mandatory in some wallets). You will get access to new coins and features.
- Do not introduce your PIN code or seed phrase anywhere except the wallet device. This will protect against phishing attacks.
While a hardware wallet is good for storing funds securely but you need to set it up and use it correctly.