What is a Hardware Wallet?
For every user of crypto, the secure storage of its assets is very important. This is because there are lots of hackers that want to obtain access to your savings in the crypto world. There are two ways to store your money – in an online (hot) wallet or in a hardware (cold) one.
There are two types of keys – public and private. If the public key is your email address, the private key is the password for it. If someone knows it, they will have access to your assets and can steal them. That’s why you must make sure that it’s in a safe place. The online type (hot wallet) is more convenient and costs nothing to obtain but is easier to be hacked. On the other hand, the cold option is always offline, meaning that it’s virtually impossible for hackers to break its security systems. When using it to send money or other assets, it must be plugged into a device that has an Internet connection.
How Does It Work?
Hardware wallets store your private keys. Due to the fact that they are offline, they must be connected to a device that has an Internet connection. They are made in such a way that the private key (password) cannot leave the device (or be copied) meaning that they are secure even if you plug them into an infected PC. The process of the transaction when using such wallets includes a few steps. First, the PC sends the incomplete transaction to it confirming that the amount of crypto and the address are correct. After the transaction is “signed” with the private key it’s sent back to the PC. After the transaction is signed, it’s broadcasted to the cryptocurrency network.
How to Use a Hardware Wallet
Their usage is usually slightly more complex than online variants but more secure. Once plugged into a device, a PIN code must be entered. In case you don’t remember your PIN, you can use a 12 to 24 words seed phrase with which you can access your funds. This phrase must be kept in a very safe place. The second step is when you get your public key for sending and receiving crypto. If you want to send crypto, you must enter again the PIN and wait for the transaction to be confirmed. Different models may have slight differences in the steps but generally, this is the whole process of usage.
Benefits
Online non-custodial wallets (such as Metamask) are easier to use but are more likely to be hacked. Because they are always online, hackers can try to break their security systems. This raises the chance of someone else obtaining your private key. Also, the hot wallets are provided by exchanges, which means that you don’t have full control over your money. If the exchange is hacked, you may lose and never recover your money. That’s where hardware wallets come into use. They never connect to the Internet on their own, making them very difficult to be attacked by hackers. Also, the password can’t leave the offline device. With such features, the only way in which it can be stolen is if it is physically taken away from you. Even after that, the PIN must be entered (or the seed phrase). This seed phrase is also very useful because it’s a great backup option in case you forget your PIN. It’s important to store that phrase in a very secure place. Our advice is to never store your seed phrase or PIN on a device that you usually use to connect to the Internet.
Disadvantages
All these advantages come with certain trade-offs. To begin with, unlike non-custodial online options, hardware wallets aren’t free. Their costs usually vary between 50 and 80 dollars. Also, beginners might have difficulties using them. However, nowadays some manufacturers produce products that are created for beginners which are much easier to use.
Also, since you always must plug them into a device that has Internet access and after that enter a PIN, they may be inconvenient for day-to-day trade. They are recommended for users who are planning to store their assets in the long term instead of trading.
One of these products’ greatest benefits is a disadvantage at the same time – the complete custody over your money. They can be compared with the storage of money in your mattress – you are the only responsible in case someone steals your money. If your wallet is destroyed in an accident like a natural disaster, so are your crypto assets. You won’t be able to turn up to anybody to solve your problem.