How To Use a Hardware Wallet?

Storing your cryptocurrency in the exchange where you bought it is dangerous as crypto exchanges are susceptible to hacks and other cybercrimes. Most of us will dip a toe into the crypto markets by visiting one of these markets and buying a few hundred dollars in currency. But then what do you do with it? Well, you can buy a hardware wallet to store it in.

Storing crypto in a hardware wallet is absolutely risky yet provides the highest form of security as no intermediaries (the exchanges where you bought the crypto) can access your funds. It is critical to use every available measure of protection to safeguard digital assets.

When used correctly, hardware wallets are an excellent way to store and safeguard your coins.

In this article, we will be discussing hardware wallets, how to use one, and how to find the right wallet for you.

What is a hardware wallet?

Hardware wallets securely keep a crypto user’s private keys in offline or “cold” storage, meaning they are not connected to the internet, except when a user must briefly connect them to a computer to complete a transaction. Software or web-based crypto wallets are called “hot” storage as they require the use of the internet to work, which attracts more hackers to steal funds. Because of this, hardware wallets are nearly universally considered to be a very safe option for keeping crypto assets out of the wrong hands.

Newer or more casual crypto users might not want to bother thinking about things like private keys or custody, so many cryptocurrency exchanges handle wallet services on behalf of account holders (known as a custodial wallet). However this means you’re trusting your private keys to a third party. Hardware wallets, on the other hand, allow users to take the security of their private keys into their own hands with a physical piece of equipment. Most often resembling USB thumb drives, hardware wallets have a small variance of form factors and features, and their sole purpose is to sign cryptocurrency transactions offline and safeguard a user’s private keys.

Advantages of a Hardware Wallet

  • Control. Hardware wallets allow you to manage your own private keys, granting you full ownership and control of your funds.
  • Maximum security. Since the private keys are kept offline at all times, they are immune to malicious software, except in a scenario where the device is defective. As they are able to sign transactions without the private keys ever leaving the device, they are more secure than a software wallet.
  • Backup options. If you do happen to lose your wallet, you can make use of the seed phrase (also known as recovery phrase) to re-generate your private key and recover access to your funds using a different wallet. Like your private key, it’s crucial that you keep your seed phrase safe and offline, ideally in a safety-deposit box.

Disadvantages of a Hardware Wallet

While the security advantages of a hardware wallet are clear, there are some disadvantages that you should be aware of:

  • Upfront cost. One fact about hardware wallets is that they are expensive investments.
  • User experience. The setup process can be quite cumbersome for beginners.
  • Accessibility. Hardware wallets are less convenient for day-to-day transactions, as they require you to physically plug them into a device before you can access your crypto. Hardware wallets are best suited to those planning on holding their assets long term, and not for trading.

How does a hardware wallet work?

Think of the hardware wallet as a highly compact computer that only exists to perform a number of essential functions for your crypto accounts with only one to two buttons. These devices have no way of connecting to the internet, which means it’s virtually impossible for hackers to access their contents. When a user is spending crypto, swapping, or otherwise sending and receiving assets to/from any wallet, the transaction must be “signed” using their private key. With a hardware wallet, transactions are signed within the device itself through what’s called a crypto bridge, a simple piece of software that facilitates a hardware wallet’s connection to the blockchain.

Once the hardware wallet is connected to a PC, the crypto bridge transfers unsigned transaction data to the device. The hardware wallet then signs the transactions via the private key and uploads them back to the bridge, which broadcasts them to the rest of the blockchain network as complete. At no point in this process does a user’s private key leave the hardware wallet.

How to choose and use a hardware wallet?

When purchasing hardware wallets, there are considerations you need to keep in mind, and these are:

  • Security features. Make sure it offers two-factor authentication and multi-signature. It should also have a backup feature such as a recovery seed phrase.
  • Interface and ease of use. Some wallets are better suited for beginners, others for more advanced users. Do your research first to avoid disappointment.
  • Supported currencies. Check the wallet if it supports the coins and tokens you wish to store.
  • Supported operating systems. Always read the compatibility of the hardware wallet you purchase as some wallets only support specific operating systems.
  • Platform compatibility. The wallet must also be compatible with the crypto exchange platform you are using. It should also offer decentralized app (DApp) and decentralized exchange (DEX) integration.
  • Portability. It should be compact, light, and easy to store on a daily basis.
  • Reputation. The reputation and longevity of the wallet maker is of the utmost importance. Check customer reviews to get a better picture of what to expect.

Once you have the device, make sure to read the manual first as not all hardware wallets are the same. Each one might be a little different, but the steps are generally the same:

  1. Connect the hardware wallet to a computer or smartphone.
  2. Upon setting up the device, you will need to set a PIN code to add an additional layer of security on the device.
  3. The app of your hardware wallet will provide you with a wallet address (public key) for sending and receiving crypto.
  4. When you send tokens from your hardware wallet to another address, confirm the transaction by physically inputting the PIN on the device.
  5. Wait for confirmation of the transaction.

Adopting the use of hardware wallets

While hardware wallets provide the best and highest form of security when it comes to crypto, they are not for crypto newbies and those who are yet to invest in the blockchain space. Handling and operating it are not for beginners. Owning a hardware wallet requires its user to constantly back up his or her information in case the device is lost, stolen, or damaged.

If you seek peace of mind knowing that your crypto funds are in a safe place that only you can access, no intermediaries at all, then having a hard wallet is highly recommended, but you should do thorough research first before purchasing one.

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