What is a hardware wallet?
A hardware wallet is a physical electronic device that stores the private keys to crypto assets in a highly secure, malware proof unit. A hardware wallet cannot be hacked or attacked by viruses. It can be used to store and transact various cryptocurrencies. Open source software is used allowing the user to validate the entire operation with the device.
Cryptocurrency protocols are confirmed by sending signed notes of payment across the internet. These messages, referred to as Transactions, are signed using a special algorithm. In order to sign the transactions, a unique key is required. The hardware wallets hold the keys and help you securely 'sign' the transactions.
1. Hardware wallets are the safest storage solution
Why not use a USB Flash Drive? Any software can read and copy the private address and malware can manipulate the receiving address. But more importantly, if the USB Flash Drive is lost, then the cryptocurrencies/ assets are also lost.
What about a Paper Wallet? Whilst a paper wallet is a secure means of storing cryptocurrencies, if the piece of paper is lost or stolen, then your crypto assets are gone with it. Also you will need to manually type out your private key every time you transact, which is prone to error and inconvenient.
How does a Software Wallet compare? Software wallets are private online wallets where you can store crypto assets. By nature of being online, they are vulnerable to being hacked in various ways. Software wallets keep your private keys either on your computer or on the internet! If using a software wallet, hackers can gain access by hacking your computer or the servers of the services you use.
However, since hardware wallets don’t support all cryptocurrencies, a combination of hardware wallet/s and software wallets may be required depending on the coins held.
With Hardware Wallets, you can be assured of,
- malware proof secure element
- offline storage of crypto assets
- private key and passphrase restores crypto assets even if the original hardware device is lost (see below)
- allows safe transactions - send and receive
- generates multiple addresses allowing unique address to be used with every transaction if so desired
At present time, hardware wallets are the safest means of storing your crypto assets.
Related reading: Why choose a Ledger Hardware Wallet?
2. How to decide on a wallet
The first thing to look at is the compatibility of cryptocurrencies purchased, or hoping to purchase, with the coins supported by each hardware wallet type. Not all coins are supported by any of the wallets. Have a look at our Ledger Nano X and Nano S FAQ pages for a list of coins supported by each hardware wallet. Currently the Ledger hardware wallet supports over 1000 coins.
Prior to using a hardware wallet, we highly recommend that you watch several step by step video tutorials on how to configure the device, and send and receive coins, prior to trying it out yourself.
3. Purchase from an authorised retailer
Once you have decided on a hardware wallet, make sure you purchase one from an authorised retailer. Crypto Wallets Australia are Authorised Australian Ledger retailers and specialise in hardware wallets.
4. Guard your Recovery phrase and Pin Code
A recovery seed is a 24 word recovery phrase, which is automatically generated for you during the initial configuration of your hardware wallet. You can restore your crypto assets in case of theft or loss of the wallet using these 24 words. It is crucial for this to be recorded correctly, kept private and in a safe place.
You get to choose a pin code to protect your hardware wallet. Select one that is at least 4 numbers. Even if the computer with which you use your hardware wallet is hacked, the hackers will not be able to gain access to your pin.
5. Loss or damage of the hardware wallet
Guard the pin code and 24 word recovery seed! If you lose the hardware wallet or damage it, if you have the 24 word recovery seed and pin code, you can simply purchase another device and reclaim your crypto assets.
A word of warning — don’t ask a friend or colleague to configure your hardware on your behalf. If you share your Recovery Phrase and pin code they will have access to your crypto assets. At Crypto Wallets Australia, we see this often with our customers. Some may ask a tech savy friend or IT manager at work to set up their hardware wallets. We highly recommend investing the time to understand and set up your wallet yourself.
Related reading: What is Ledger Live?