Having a safe place to store your cryptocurrency is the most essential part of owning crypto. The space has its fair share of bad actors with loads of techniques for stealing users' money. Therefore, setting up a plan to keep your coins safe should be your top priority.
Fortunately, you have several storage options, each with its trade-offs between security and ease of use. Most newcomers often stick to keeping their assets on exchanges.
Considering that most people learn about cryptocurrency for the first time on these platforms, it's no surprise that they store their money in an online wallet.
However, online wallets don’t give users full control over their crypto. They may be unable to recover their funds if the exchange is hacked or taken offline.
Users may not see the need to withdraw their cryptocurrency from the exchange because they either lack the necessary skills or believe custodial solutions are secure enough.
The prospect of taking control of your cryptocurrency may be scary, but hardware wallets are the best option when it comes to security. In this article, we'll explain what they are, how they work, and why you should use them.
What is a hardware wallet?
Hardware wallets — often called cold wallets — are physical devices that are specifically designed to generate and store private keys securely. They're safer than software wallets because they never connect to the internet. This "offline" feature significantly reduces the attack vectors and threats because malicious parties cannot tamper with hardware wallets remotely.
What is a private key?
Think of your private key as the key to your bank deposit vault, where all your important documents and cash are stored. In many ways, private keys are similar to physical ones in that you can unlock and spend your funds.
In addition, someone else can steal your cryptocurrency if they get their hands on it. In a decentralized environment, if you lose the key, you lose access to your coins.
There is no forgot password button to click or bank customer service to help you reverse fraudulent transactions.
Ultimately, private keys must be kept secret and safe — preferably in a hardware wallet, not in Coinbase or Binance's custody. Not surprisingly, hackers always try to steal private keys by attacking online wallet providers who control their users' private keys.
How does a hardware wallet work?
The best hardware wallets are always offline; therefore, they need a smartphone or desktop computer interface to enable human interaction. You can plug a well-designed wallet into infected PCs or smartphones without exposing the private key. The wallet interacts with software, allowing users to view their balance or perform transactions.
When the user initiates a transaction on the software transaction, it is sent to the hardware device because it needs to be signed by the device's private key.
When prompted by the hardware device, users confirm that the amount and address are correct.
It is then signed and returned to the software, which broadcasts the transaction to the blockchain network.
Why should you use a hardware wallet?
A hardware wallet offers several advantages. First and foremost, it's exceptionally secure because it stores your private keys offline, making it highly resistant to hacking attempts.
Its physical design provides an extra layer of protection, and features like PINs and recovery phrases ensure your funds remain inaccessible to unauthorized users.
Additionally, hardware wallets are user-friendly, making them accessible even to beginners. Their compatibility with a wide range of cryptocurrencies and the ability to securely store large amounts of digital assets make them an essential tool for anyone serious about safeguarding their crypto investments.
What happens if you lose your hardware wallet?
Hardware wallets need backups if lost, stolen, or destroyed. During setup, the user is usually prompted to write down their "seed phrase," a list of words that they can use to get their assets back on a new device.
If you lose your hardware wallet, the good news is that your cryptocurrency will remain completely safe. Your cryptocurrencies (Bitcoin, Ethereum, and thousands of others) are stored on the blockchain rather than in the wallet. The wallet merely provides access to your private keys.
What happens if your hardware wallet is stolen?
In such a scenario, your cryptocurrency will remain where it has always been (on the blockchain). You can recover your wallet using another device (Tangem Wallet example) or with the seed phrase.
As an example, consider Tangem hardware wallets. Every device is secured by an access code that only you know. Without that access, no one can get into your wallet; even if they steal your device, they won't be able to access your crypto.
Tangem's solution for crypto security
Tangem's hardware wallet combines multiple security elements and features to provide complete control over your private keys while allowing you to interact with Web3's new options conveniently. Learn more about why Tangem is a reliable hardware wallet here.
Final thoughts
Hardware wallets are about as safe as it gets when it comes to ways to store your digital assets. When looking for a hardware wallet, you should learn about the different kinds that are out there. There are a lot of different devices on the market, and each one has its own set of features, supported cryptocurrencies, and learning curve.