Cryptocurrency Hardware Wallets
You've probably heard plenty of news stories about viruses, ransomware, and other digital nasties that can lift your data and ruin your life. It seems like in our interconnected world, there's always a hacker lurking somewhere nearby, even if they’re on the other side of the world, which means that if your Bitcoin wallet is sitting on a computer that gets compromised then somebody that you have no hope of finding could get at your private keys. If a hacker gets remote control of your computer and they get your private keys then you have effectively lost control of your crypto coins, because the intruder would then be able to move them elsewhere.
You could try using antivirus software because it’s usually pretty good at protecting your digital assets, but honestly, it isn't always enough to guarantee that your machine will be safe. The problem is that some malware can trick the detection software into thinking that it’s a legitimate program, so it’s then free to run on your system with impunity.
Cryptocurrency hardware wallets are always going to be a far safer option than even the best software because there is simply no way of accessing them other than by being in the same room.
A hardware crypto wallet is a computer that's been stripped down to its absolute basics. It has a couple of buttons and a small screen, and all it can do is sign transactions and store keys. Crypto hardware wallets usually look like USB devices, so in comparison to many modern systems they are quite primitive, but that’s to their advantage. The thinking behind this approach is that the more complexity you introduce to a device, the more chances a bad actor has of bypassing its security features—the simpler a device, the harder it is to hack.
- How Do Hardware Wallets Work?
- Hardware Wallets - Seed Phrase
- What is the Best Hardware Wallet?
- Crypto hardware Wallets Vulnerabilities
A simple crypto hardware wallet that isn't connected to any network and is going to be impossible to compromise. This security method is known as ‘cold storage’, but there are hardware wallets that do connect to the Internet available too, and they are known as ‘hot wallets’.
How Do Hardware Wallets Work?
Since crypto hardware wallets are so simple, they are only able to sign transactions. They can't prepare the transaction and send it to the network. Since that is something that you are going to need to do, you'll have to hook your device up with your PC and run some software that can talk to it and get your transaction ready for signing.
Cryptocurrency hardware wallets will only permit certain data types to be used. When crypto hardware wallets receive a transaction from this ‘go-between’ program, they sign it themselves (not on the computer) and send it back. This means that your private key doesn’t leave the hardware wallet at any stage. The only thing in transit is the unsigned and signed transaction.
This simplistic approach allows cryptocurrency hardware wallets to be used with any computer, even a public one. The main consideration to keeping your crypto coins safe is to ensure that transactions you see on the PC screen match the one on the cryptocurrency hardware wallet’s screen.
Hardware Wallets – Seed Phrase
It’s relatively easy to set up a hardware wallet. You’ll need to write down some words that you’ll be given when you first start up the device. These words also go by the names of mnemonic phrases or seed phrases, and they’re what you need to restore any private keys that your crypto hardware wallets create. Anybody with access to these can control your cryptocurrency, so keep your seed phrase very safe.
What is the Best Hardware Wallet?
Twelve or more companies currently offer cryptocurrency hardware wallets and the top three at the moment are Ledger, TREZOR, and KeepKey. Each of them works in a slightly different way, so let’s take a look at what they do.
Crypto hardware Wallets Vulnerabilities
It’s possible that someone could interfere with the crypto wallet you ordered before it arrives at your home address. To mitigate this possibility, decent manufacturers add a holographic sticker which proves that it hasn’t been tampered with.
If your wallet arrives and this isn’t the case, then you shouldn’t use it. Some indeed have their own built-in test to see if they’ve been compromised, but with so much at stake, it’s better to be safe than sorry. Also, consider only buying crypto hardware wallets straight from the manufacturer, and if you do go with a reseller then satisfy yourself that they are trustworthy—ask the manufacturer to vouch for them first.
Preconfigured Seed Phrase
Your wallet should randomly create your seed phrase during the initial setup. It isn’t sent to you with your order. There has been a case where someone received a crypto hardware wallet and used the pre-arranged seed phrase that came with it. The seller was a criminal who was then able to get into the wallet with their copy of the phrase and make off with the buyer’s coins.
Evil Maid Attack
Anybody who sneaks off with or gets into your cryptocurrency hardware wallets without your permission is perpetrating what’s known as an ‘evil maid attack’. That’s why PIN protection is usually included as standard. It stops the thief from getting in and purloining your crypto.
If you are unfortunate and your device gets swiped, then don’t despair. You can still use your seed phrase to get your cryptocurrency back and move the coins to different cryptocurrency hardware wallets with other seed phrases. This will retrieve all of the funds and restore your coins to your control.
The $5 Wrench Attack
This refers to a situation where you are threatened in person by someone who wants you to give up your PIN. To defend against this, TREZOR is one manufacturer that lets you add an extra layer of protection with a passphrase. This is a phrase you add in addition to the PIN code. The beauty of it is that you don’t just have one passphrase. You could set up another account under a different passphrase that only holds a small amount of cryptocurrency, and you can make this the only one that’s visible. The person waving the five-dollar wrench at you will hopefully be satisfied that you’ve unlocked your wallet and transferred what’s in it to them.
Conclusion – get crypto hardware wallets if you like keeping your money safe
Cryptocurrency hardware wallets will cost you up to $100, and not getting this kind of protection could cost you an absolute fortune. It would probably cost you at least that much to have somebody put a new lock on your front door, so if you value the money in your account as much as you value your front door, then a crypto hardware wallets is a no-brainer.
The TREZOR One and the Ledger Nano S are two top choices, but as we said, remember to buy only from the company itself or authorized resellers. Going the eBay or Amazon route is usually the most economical one, but not in this case!