There are many ways to store Bitcoin and other cryptocurrencies. All of them are generally referred to as wallets. A Bitcoin wallet is essentially a set of public and private keys or addresses that are used for sending and receiving Bitcoin. A hardware wallet is a unique form of storage that gives you greater control over your keys. It exists on a physical device that you can keep on your person at all times. This type of wallet is sometimes referred to as cold storage.
Bitcoin Hardware Wallets for Beginners
Let’s begin the discussion with a very simple definition. A hardware wallet is a physical device for storing Bitcoin and other digital tokens. It keeps the unique keys of an individual in a standalone hardware device that is often no bigger than a key fob or a USB stick. Those who prefer this kind of wallet consider it to be the most secure manner of storing Bitcoin. To date there have been few, if any, reports of tokens being stolen from a hardware Bitcoin wallet.
Now, let’s get a little more specific. Hardware wallets allow the user a level of interaction that is unlike paper wallets, web wallets, or desktop wallets. The security of these wallets is greater because they must be in the possession of whoever intends to use them. There is no record of the wallet stored on a third-party server in the same manner that a web wallet is recorded. They are resilient and immune to viruses or hacks, and there is no way to use plaintext to transfer funds out of the wallet.
The technical side of hardware wallets is not nearly as important to the user as their features. A hardware wallet often includes an intuitive screen. This makes it possible for the user to visually verify balances and other wallet details. A recovery phrase can be generated by the user in case the device is lost or stops working. There is much upside to this method of Bitcoin storage. It is definitely recommended for the serious cryptocurrency investor.
Examples of Bitcoin Hardware Wallets
There have been as many as eight or nine different hardware wallets introduced. Some of them have never gained traction and others were discontinued. At the present time there are three hardware wallets that dominate the marketplace.
The Ledger Nano S and Ledger Blue are innovative hardware wallets that are developed in Europe. These wallets include a nice screen which prompts users when using the device. There is a two-button press required for transactions, and this makes it even harder for the wallet to be hacked. It ships in a box with a tamper-proof seal, and users can set their own recovery passphrase. Retail, depending on the device you choose, can be around 58€.
The Trezor is similar to the Ledger varieties. It allows users to back up the wallet with a passphrase that can have 24 words or more. Users can also create a PIN code that is used to operate the device. The average price of this wallet is around $99.
KeepKey also has a hardware wallet, and it is one that allows for recovery with a Chrome extension. Some people might not like this feature. It has a digital screen and a durable metal body that resists damage. Average price is around $99.
There are some less expensive hardware wallets available which do not have a screen. These devices can be more difficult for some people to operate. A model with a screen is probably going to suit more users.
How to Use a Bitcoin Hardware Wallet
When you receive your Bitcoin hardware wallet it will be in a sealed box that typically contains a holographic seal. If the seal is broken this could mean that someone has tampered with the wallet. You should not use the wallet if the seal is broken. Return it and request a replacement.
You will need to connect the wallet to the Internet when you make a transaction. Many hardware wallets accomplish this with a USB connection. Some hardware wallets also use online software to generate QR codes that are scanned.
Devices like the Trezor require the use of a PIN code. The private keys of a user never leave the Trezor device. A recovery seed is created when the device is first used. This means that the wallet can be recovered if the device is lost or destroyed.
Security for Your Hardware Wallet
Along with a paper wallet these hardware wallets are known as a type of cold storage. This simply means that they are not kept online. The only time your device has any type of connection to the Internet is when you are making a transaction. Once the device is disconnected, no one except the possessor of the device can access the wallet.
This doesn’t mean that there aren’t security concerns. The biggest of these would be losing the device or destroying it. You can recover the wallet in most cases if you have created the recovery seed, but there is still the risk that someone could find it and possibly determine your PIN number. You need to take precautions to protect your hardware wallet.
The recovery seed should be documented and stored in a safe location. If this is not done you may not be able to remember the recovery phrase when you need it. You should also keep the wallet on your person or locked up in a home safe or desk drawer.
Many will find that using a hardware wallet is a wise choice. It will give you more peace of mind about the security of your Bitcoin and other tokens.