How Hardware Wallets Work and Why They Are Secure
After acquiring cryptoassets on secure global digital exchanges like Coinbase, Coinmama, Binance, or Abra, one of the most common questions new crypto-enthusiasts ask is why hardware wallets are the most secure way to store digital assets. What if the device gets stolen or lost?
In this post, we’ll explain in somewhat technical language how these devices work, and how they can be both versatile and extremely secure.
What is a Hardware Wallet?
A hardware wallet is a special type of cryptocurrency wallet that uses a secure hardware device to store a user’s private keys.
The private keys and digital signatures needed to purchase and exchange cryptocurrencies are generated by the hardware wallets. Some examples of the most secure and easily usable hardware wallets include Ledger Nano S, Trezor Model T, and Keepkey.
Hardware wallets are preferred to standard software wallets for many reasons, including:
Immune to malware attacks
These devices cannot be affected by viruses. A user’s private key is stored in the device and cannot be transferred out in the form of plain text.
Transactions are made online and digital assets are stored offline. Wallets can be used securely and interactively. Additionally, they support different cryptocurrencies and are compatible with several web interfaces.
As a hardware wallet user, you simply plug in the wallet to any internet-enabled device, enter a PIN, initiate the transaction, and then confirm to send the digital asset. The device makes it possible for you to carry out transactions while also storing your money offline.
This is the best option to safeguard cryptos by storing your access keys somewhere not accessible on the internet.
Before sending your coins to cold storage via your hardware wallet, you'll want to be selective about choosing a safe and trusted digital exchange to buy and sell cryptocurrencies. The Crypto Merchant has partnerships with several of the top global exchanges: Binance, the largest-volume exchange with low trading fees; Coinmama, extremely user-friendly, quick, and convenient; Coinbase (offering 10$ worth of free bitcoin for new users); LocalBitcoins, one of the most private exchanges; and Abra, for simple and instant investing on the go (offering our blog readers $25 worth of free bitcoin after your first deposit with a bank transfer or AmEx, or 1.5% back for your crypto trading). Of course, you'll want to try each exchange to see which one best serves your individual needs and preferences.
How Hardware Wallets Act as Your Private Key
According to blockchain rules, you “own” the cryptocurrencies on the online exchange, but the exchange has control over them. This is because without a hardware wallet you don’t have a private key to your exchange account.
Your private key is the unique code that allows you to access your assets offline. Cryptocurrency exchanges are not safe because they store your private key on an online server with thousands of other private keys of different users. Therefore exchanges are ideal targets for hackers and there have been cases where exchanges have been hacked and millions of dollars of crypto has been stolen.
The only way you can truly secure your assets is to possess your own private key and store it offline.
Hardware wallets don’t just run a node on your PC, but store your key on a dedicated chip. You can conduct safe transactions because private keys are never sent in plain text to an internet-enabled device.
The wallets are designed to make it possible to access the private keys they protect because they never leave the device. This is known as the “principle of isolation,” or cold storage. These private keys are never online, meaning they can never be exposed to the internet nor to the computer to which it’s connected.
Hardware wallets have a display screen where you can monitor and verify transactions in an isolated system.
In the case that you lose your hardware wallet, don’t worry! You can still restore all of your assets. You’ll need to order a new hardware wallet, or any other wallet that supports BIP-39 Mnemonic code for generating deterministic keys.
Then you will enter your 24-word seed, which is the same key from your lost or stolen device. Without this key, you cannot restore access to your digital assets, so you must keep it in a safe place.
Multiple Coin Management
Hardware wallets can store multiple coins. For example, the Ledger Nano S receives updates and helps users by adding support for multiple coins, which enables the switch between different cryptocurrency wallets on the same device.
Examples of cryptocurrencies supported include Bitcoin, Ripple, Ethereum, and Litecoin. Users can install dedicated PC applications to aid interaction with the various digital assets stored on the wallet—or use extensions with Google Chrome.
In summary, a hardware wallet is an exceptionally safe way to store your crypto assets. As an investor, you should seriously consider getting one for yourself to avoid the risk of losing your digital assets to hackers.
Now with a better understanding of how hardware wallets work, you’re probably interested in obtaining one for your digital assets. To get the best deals and high-quality products, visit our page or contact our team for more info.