What Is a Hardware Wallet?

When investing in cryptocurrency, the safety of your funds should be your top priority. Since you can’t store crypto in a bank or your physical wallet, there must be another method for keeping your assets safe.

That’s what cryptocurrency wallets are used for. The crypto market is full of security risks, and hackers are constantly finding ways to trick users and steal their crypto. Because of this, you should always use a reliable and secure crypto wallet.

While software-based crypto wallets offer a high degree of security, hardware wallets are a step up in terms of their safety features. 

In this article, we’ll find out how crypto wallets work and what exactly makes a hardware wallet. We’ll take a look at two of the most popular hardware wallets on the market and find out how to use one for storing crypto.

How Do Crypto Wallets Work?

To understand hardware crypto wallets, we need to take a look at how crypto storage works in general.

Every cryptocurrency uses a blockchain network to facilitate transactions and a specific cryptocurrency can never leave its native blockchain. Bitcoin (BTC) always stays on the Bitcoin blockchain. You can’t move BTC to another blockchain. 

Cryptocurrencies just change virtual locations on the blockchain called public addresses. Crypto wallets provide users with public addresses for specific blockchains and allow users to securely store their assets.

Anyone can view the crypto balance of any public address with the help of a blockchain explorer. However, only the user with the right private key, a form of blockchain password, can manage the funds within a specific public address. Apart from providing users with public addresses, crypto wallets also provide private keys and keep them secure from unauthorized access. 

To protect your private keys, crypto wallets use various security measures, such as passwords, unique passphrases, PIN codes, two-factor authentication, fingerprint logins, and different encryption methods.

Finally, your private keys are encrypted with a 12 or 24-word recovery seed phrase consisting of randomly generated words. Remember never to share this phrase with anyone. 

Software Wallets

If someone gets hold of your private keys, they can easily drain your wallet and steal all the crypto from your public addresses. That’s why it’s important to always use a popular, top-quality crypto wallet.

Software wallets come in the form of a desktop or mobile app and are very practical to use. However, they require a constant internet connection, which makes them vulnerable to cyber-attacks.

Hackers try to steal crypto wallet passwords and private keys through fake emails with malware links, phishing attacks, keylogger viruses, and other malicious software hacks. That’s why your software crypto wallet is as secure as your online behavior.

You should be safe if you don’t click on unverified links and don’t connect your wallet to unknown apps. However, there’s always a possibility that a cyber attacker might hack your device anyway.

Hardware Wallets

Because of the possibility of cyber hacks, users looking to store high volumes of crypto or looking for a higher level of security are advised to use hardware crypto wallets. 

A hardware wallet is a physical device designed to keep your private keys safe. Unlike software wallet apps, which are free to download and use, hardware wallets come at a price that is absolutely worth it because you get considerably more security for your crypto.

The key security trait of a hardware wallet is that it doesn’t require a constant internet connection like software wallets. Instead, hardware wallets store your private keys offline and out of reach of hackers. There’s no possibility for a hacker to steal your crypto remotely through an internet connection. 

Hardware wallet devices use all the security methods used by software wallets, with the addition of hardware encryption. Hardware encryption methods vary depending on the wallet manufacturer, but they generally include secure device chips immune to most types of hardware hacks. This means that even if someone gets hold of your hardware wallet device, they wouldn’t be able to hack it manually. 

To use a hardware wallet for storing assets and managing your crypto portfolio, you need to install specific firmware from your wallet manufacturer. Some hardware wallets allow users to access them only through a desktop or laptop computer, while others support mobile devices. 

When you want to use your hardware wallet, you need to unlock it with your password, PIN code, or another login method. Even when you’re managing your crypto, hardware wallets keep your private keys offline.

The wallet’s encryption features prevent internet connections from interacting with the private keys stored on the devices. Additionally, popular hardware wallets require users to double authenticate every transaction by entering their password or passphrase on the device each time they initiate a transaction through the wallet’s firmware. 

Leading Hardware Wallets

There are various reliable hardware wallets on the market, but Ledger and Trezor devices are generally regarded as the most popular hardware crypto wallets, and they have the most users on a global scale.

Let’s have a look at the latest hardware devices from these two companies.

Trezor Model One and Model T

Back in 2013, during the early days of crypto, two Czech crypto enthusiasts envisioned a hardware device with supreme security features for storing Bitcoin and other digital currencies. They founded SatoshiLabs, and one year later, the company launched Trezor Model One, the first hardware crypto wallet in the world. 

The Model One device came in the form of a key-sized, pitch black USB device with a small screen wide enough to display six lines of text. This was enough to display all the necessary transaction details and allow users to verify transfers.

The device had two buttons below the screen for conducting basic operations, such as verifying transactions. The wallet comes with a USB cable to connect it to desktop or laptop computers and mobile phones. The later Model T device comes with a larger touchscreen, so no buttons. 

Both devices support more than 1,000 trending crypto coins and tokens. To use Trezor hardware wallets, you need to download the official Trezor firmware and install it on your computer or mobile device. Besides transferring crypto and storing it on your Trezor device, you can also buy and exchange cryptocurrencies through the Trezor firmware interface. 

With Trezor, your crypto is protected by a PIN code, passphrase, and your recovery seed phrase. Trezor devices have some of the best hardware encryption on the market and a clean hack record. 

Ledger Nano S and Ledger Nano X

Ledger is another extremely popular hardware wallet manufacturer. Ledger is a French company that specializes in blockchain security solutions, and Ledger Nano S is their first hardware wallet device, launched in 2016. The Ledger Nano S model supports more than 1,000 digital currencies and allows users to safely store their private keys offline. 

Ledger devices are regarded as the safest hardware crypto wallets because they use advanced CC EAL5+ hardware chips called Secure Element chips. These wallets have never been hacked and offer some of the best encryption on the market.

Additionally, Ledger wallets use PIN codes and passphrases to protect your private keys. In case you lose your Ledger device or someone steals it, you can use your recovery seed phrase to recover the contents of your wallet on another Ledger device.

The Nano S model looks like a standard USB device, except that it has a small screen and two buttons for browsing assets and approving transactions. The Ledger Nano X model was launched in 2019, has more memory than the Nano S model, and comes with Bluetooth connectivity.

To use a Ledger hardware wallet, you need to install the Ledger firmware on your computer or mobile device. Additionally, you need to install the appropriate app for each crypto you want to store.

The original Ledger Nano S only supported 5 apps simultaneously, but the new Ledger Nano S Plus model supports 100 apps, just like the Ledger Nano X. You can browse apps on the Ledger Live interface and once you install an app, you’re ready to store your crypto.

Conclusion

Hardware wallets serve to give users an additional layer of security in the risk-filled world of crypto. The worst thing you can do is leave your crypto without sufficient protection.

If you’re keeping your assets on a crypto exchange, the platform might get hacked, and you can lose your funds. Additionally, even if you store crypto in a software wallet, someone might hack your device and get hold of your private keys if you accidentally click on a malware link.

On the other hand, hardware wallets keep your private keys offline, and no one can get hold of them. What’s more, popular software wallets support hardware wallet connectivity, so you can link your hardware wallet to quickly access your crypto while keeping your private keys safely stored offline.