A blockchain is a ledger that is simultaneously stored and updated on thousands of independent computers across the globe. While I will use bitcoin as an example in this post, a lot of the concepts discussed here apply to other cryptocurrencies. Thanks to how the blockchain works, losing your hardware wallet or accidentally putting it through the washing machine won’t affect your holdings. As long as you still have your seed phrase your wallet can be recovered. In the early days of bitcoin, there was a clear trade-off between wallet security and convenience.

why use a hardware wallet

Ensure that the hardware wallet supports the cryptocurrencies you are interested in investing in. Some wallets may only support a limited number of coins, so check the compatibility list before purchasing. A private key is a secret number that is used to send encrypted messages.

IMPORTANT! Your Seed Phrase

The private key allows you to access and control the Bitcoins you own. For my email account analogy, you might think of your private key as the password to your email account. All it can do is receive the transactions, and push them back out. Storing your keys is straightforward – they’re just strings of numbers and letters. To use the keys to move funds, however, they need to be on a device that creates proof that you can spend your coins.

why use a hardware wallet

Obviously, there’s a risk that you could lose or damage your hardware wallet. You only get a password and login credentials to access your account, while the keys are owned by the wallet provider. There are a lot of options to pick from when choosing a software wallet, and most of them are free to use. Using a hardware wallet with MetaMask adds a layer of security to your self-custody journey. Fortunately, the hardware wallet landscape has matured a lot, and having a convenient experience no longer comes at the expense of security.

How to Mine Crypto

In addition to keeping private keys secret and storing them someplace secure, it is also a good idea to enable strong passwords on any device you store crypto on and 2FA if possible. There are also many other best practices to follow such as antivirus and malware scanners that I won’t go into here as we cover that in our dedicated Crypto Safety 101 article. Ledger’s own website warns of phishing websites posing as them or their team. Ledger and other official vendors will never ask you for your seed phrase or any other private information about your hardware wallets.

  • The most secure option, however, is to use two hardware wallets.
  • They are just necessary one-time investments if you’re planning to stay in there for long.
  • The term wallet refers to a place for storing data, including pairs of digital keys which unlock coins on the network.
  • This is because the keys are stored in the wallet, and the wallet is always connected to the internet, thus making it more vulnerable to online attacks.
  • Overall, the decision to use a hardware wallet will depend on your individual needs and circumstances.

To the extent any recommendations or statements of opinion or fact made in a story may constitute financial advice, they constitute general information and not personal financial advice in https://xcritical.com/ any form. As such, any recommendations or statements do not take into account the financial circumstances, investment objectives, tax implications, or any specific requirements of readers.

What are Hardware Wallets?

Hardware wallets are one of the most secure and convenient ways to store and interact with your cryptocurrency. Here at the Coin Bureau, we praise these devices and bang the “not your keys, not your coins” drum all day long. You may have heard that saying before, but let’s quickly cover it. Cold storage wallets don’t have a way for hackers to reach them remotely as they do not have Wi-Fi access.

In fact, Ledger uses the same type of secure chip that is found in passports and bank cards to keep your private keys private. A desktop wallet is an app that runs on your computer via your browser’s extension. A majority of desktop web3 wallets are non-custodial—meaning it’s controlled by you. To retain it for a longer period of time, you can laminate the paper and put it in your bank locker.

Hardware Wallets Explained

In order to minimize this risk even more, always buy a hardware wallet straight from the manufacturer’s website. If you want to buy from a reseller, make sure that they’re an authorized, trustworthy reseller by contacting the manufacturer first. If you receive a wallet and this hardware crypto wallet sticker isn’t intact, don’t use that wallet. While some wallets also run a self tampering test when initializing, it’s better to stay on the safe side. Is another hardware wallet I have reviewed, however it was in the early stages and I couldn’t get it to work properly.

Let’s say you want to send a Bitcoin transaction using a hardware wallet. As you probably know, stealing a piece of information from a computer isn’t that hard these days. If the computer running your Bitcoin wallet is infected with malware, it may expose your private key to bad actors. In a nutshell, a digital signature is a way to prove you own a certain private key without needing to expose it. It’s done through the use of complex mathematical rules known as cryptography. Bitcoin wallet is a bit misleading, as a Bitcoin wallet doesn’t really hold any Bitcoin.

Keeping your data safe online

However, it can easily be used alongside a hardware wallet for the perfect balance of security and convenience. Only buy a hardware wallet from a reputable manufacturer, and it should go without saying, but never buy a used hardware wallet. Most hardware wallets include a clearly visible security feature like a holographic sticker to alert the buyer if the device has been tampered with. The number of hardware wallets you use should be based on your individual needs and preferences, as well as your level of comfort with managing your cryptocurrency holdings. The Ledger Nano S and Ledger Nano X are two popular options, with the former being a more affordable entry-level device and the latter providing more advanced features such as Bluetooth connectivity.

Software Wallet Pros

Cryptocurrencies depend on secrets being encrypted and decrypted using privately held, impossible-to-guess keys, which must be created and stored offline to preserve their uniqueness. However, if you are only planning on using a small amount of Bitcoin or are comfortable using other Bitcoin wallets, a hardware wallet may not be necessary. In either of the above cases, even an offline key cannot protect your wallet if you’ve signed a bad smart contract. This is known as 2FA and ensures nobody can ever transact with your crypto private keys remotely.