In our “Crypto 101” blog article, we briefly touched on blockchain wallets which allow users to manage and trade different crypto.
👀 In this article, we’ll take a closer look at hardware wallets, explain what they are, how they work and ways to keep your crypto secure. We’ll also briefly explain the simple process in setting them up.
❓ WHAT IS A HARDWARE WALLET?
👉 Hardware wallets, also known as cold wallets, are a special type of bitcoin or crypto wallet that stores a user’s private keys🔑 in a secure hardware device.🔒
The term “crypto wallet” is a little bit misleading as the wallet doesn't really “hold” your digital cryptocurrency. Your hardware wallet is actually a piece of software that holds passwords - referred to in cryptographic terms as “keys”.🔑 These private keys grant you access to the crypto allocated to it on the transaction ledger, or blockchain.
🗝️ Your cryptocurrency address is your public key. This is the information you send to people who want to send you cryptocurrency. It works like an email address.
🔑 Your password, or a secret seed phrase, is your private key. Using cryptography, your private keys broadcast a unique digital signature to the network without exposing it, and forms as a proof of ownership, validating its authenticity in a transaction.
❓ HOW DO HARDWARE WALLETS WORK?
👤 Hardware wallets use a form of 2 Factor Authentication (also known as 2FA). What this means is that in order to access your crypto funds, you will need to prove your identity through something you have (like the physical wallet) and something you know (the PIN code for the wallet).
Hardware wallets often look like small USB devices. If you’re serious about securing your Bitcoin and other cryptocurrency, you will need to get a hardware wallet.
💻 In order to use your hardware wallet, you’ll need to connect it to your personal computer and download a program that can communicate with it.
Once set up, you are now ready to send and receive transactions.☺️
👉 The only thing you’ll need to do to make sure your cryptocurrency is safe, is to make sure the transaction you’re approving on the hardware wallet’s screen matches the transaction your wallet’s software program is showing on your personal computer.
📝 Another important step is to write down the seed phrase (or mnemonic phrase / set of words) you are given to initialize the device. This can be re-entered later to restore any private key your hardware wallet generates.
⚠️ Remember to keep your seed phrase hidden and offline.
✔️ ADVANTAGES OF HARDWARE WALLETS
Hardware wallets have several major advantages over standard software wallets. Software wallets are virtual crypto wallets that you can access as an app on your smartphone or as a browser add-on. So what makes hardware wallets secure?
- 🔒 Your valuable private keys are stored in a protected area of a microcontroller and cannot be transferred out of the device in plaintext.
- 🖥️ Hardware wallets are immune to computer devices that have the ability to steal from software wallets.
- 🔑 They can be used securely and interactively. Your private keys never need to be at risk from potentially vulnerable software.
- 🤓 Hardware wallet software is often open source, allowing a user to validate the entire operation of the device.
Currently, there are over a dozen companies offering hardware wallets on the market. The three market leaders are Ledger, TREZOR and KeepKey. Each of these companies offer different models with varying features.
👀 We plan on covering the best hardware wallets for 2023 in an upcoming blog post so stay tuned and follow us for more informative crypto articles!
The information provided on this website does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website's content as such. Bloom does not recommend that any cryptocurrency or NFTs should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.