A serious cryptocurrency investor always purchases a hardware wallet to store cryptocurrency.
You can transact easily via hardware wallets, but there is no such risk like online wallets, exchanges, or hot ware wallets. Hardware wallets also have a security advantage over other offline storage methods like paper wallets, because their private keys are completely offline.
This article compares different types of wallets and explains why hardware wallets are the safest way to store cryptocurrencies.
Why is a hardware wallet the best way to store cryptocurrency for the long term?
It is important to understand what private key really is.
Cryptocurrency technology uses private keys and public addresses. The public address is where the cryptocurrency received. You can think of them as email addresses that others use to send you information and you can use to send information to others. The private key is the code that only you have access to and you use it to access cryptocurrencies sent it to your public address.
The private key is the thing that gives you ownership of your cryptocurrency. If someone has access to your private key, they could steal all your cryptocurrencies connected with those keys.
How about the exchange and online wallet?
Crypto exchanges are organizations that allow you to trade one cryptocurrency for another or exchange cryptocurrencies to fiat currencies such as VND. The exchange is a perfect place for investors to trade cryptocurrencies, but it’s not good if you stored money on it in the long-term.
But even if you safely store your cryptocurrencies offline, you’ll want to choose a reliable online exchange to buy and sell Bitcoin and Altcoin. Binance, Coinbase, Bittrex, LocalBitcoins are the top and most used exchanges. In Vietnam, you can buy BTC by VND here.
On the exchange, your private keys are stored by the exchange using a combination of offline wallets (offline – cold wallet) and online (online – hot wallet).
However, storing too much money makes the exchange always the target of hackers. When they are hacked, private keys stored online will be hacked. In 2017, Korean Bithumb was hacked and thousands of customers’ private keys were compromised and money lost.
Moreover, if using an exchange to store cryptocurrencies for a long time means that the exchange will store your private keys for you and you do not have access to them. This means you don’t have real ownership of your cryptocurrency. Your ability to take back your property will depend entirely on whether your account could be hacked, update policies and government regulations of the exchange where it was founded or when exchange cannot be accessed; or depending on the rules of the exchange when your account is suspected with fraudulent signs, your account may be frozen.
Why is a hardware wallet secure?
Hardware wallets were invented to give cryptocurrency investors a storage solution without the drawbacks of other wallets. Hardware wallets are considered the most secure method because they are the only type of wallet with a private key that is always completely offline.
Separate cash storage
When you use your hardware wallet, you will need to plug the device into a computer connected to the internet. However, the private keys are created offline in the hardware wallet CPU, and they remain offline when you make transactions and view your balance. The CPU is securely isolated, so even if you plug the hardware wallet into a computer infected with malware, there’s no risk of exposing your private key.
Hardware wallets also have advantages that make them easier to use and more convenient than other wallets. When you are ready to make a transaction or view your balance, all you need to do is enter a 4-9-digit PIN and then confirm the transaction on the screen on your device. This is obviously more convenient than paper wallets because it requires you to enter the entire private key every time you need to make a transaction.
Restore wallet with Seed Key
One of the best features of a hardware wallet is that all your private keys and public addresses are stored on one primary key. This master key is represented as a recovery phrase – a sequence of 12, 18 or 24 words. With this recovery phrase, you can access all your different cryptocurrencies.
When you first install your device, a random recovery phrase will be generated. It is essential that you copy this recovery phrase to paper, keep it completely offline, and in a secure location (such as a safe or another safe place where you can put money or a bank book). If your hardware wallet is lost, stolen or broken, you can easily recover all your cryptocurrencies by entering your recovery phrase into a compatible hardware or software wallet.
Hardware wallets can generate an unlimited number of recovery phrases, so if your recovery phrase is stolen, you can create a new seed word and transfer your assets to a new wallet.
Support many currencies
Another great advantage of hardware wallets is the support for many cryptocurrencies. Trezor and Ledger wallets support all major currencies (Bitcoin, Ethereum, Litecoin, etc.), dozens of altcoins and all ERC20 tokens. So if you are an investor who has diversified your asset portfolio, you can store multiple or all of them on a hardware wallet and with the same recovery phrase.
The most important principle when using a hardware wallet is to always keep the phrase of complete recovery offline and in a safe place. Remember that if someone steals your recovery phrase then they can easily steal all your cryptocurrencies. This is why you should never take a picture of a recovery phrase, never enter it into a computer or mobile device, and never upload it to cloud storage. The recovery phrase should only be backed up on a piece of paper or engraved with a password on the steel plate.
Recover your cryptocurrency if your hardware wallet is stolen
The last precaution you should take is to protect your equipment in a practical way. If your hardware wallet is lost or stolen, the PIN will prevent unauthorized users from accessing your cryptocurrency. However, if a technically capable hacker has your hardware wallet, then it is likely that they can detect the private key. If your device is lost or stolen, you should enter your recovery phrase into another wallet as soon as possible and then send all your cryptocurrencies to another wallet with the recovery phrase. There are some users who buy two hardware wallets, in case this happens.
New users of cryptocurrencies are concerned in hacking, but as long as you secure your recovery phrase and device and have to buy it from an official seller from the manufacturer (you are advised not to buy on online shopping stores such as Amazone as they may be buying the used goods), you can be assured that your cryptocurrency on hardware wallets is being hosted by an anti-fraud system on the hardware wallet itseft.
Hardware wallet example:
Trezor Model T – Trezor’s latest generation hardware wallet, has a touch screen and supports multiple currencies.
Trezor One – No touchscreen and doesn’t support as many coins as the Model T, but it’s much cheaper and security is still very good.
Ledger Nano X – Ledger’s latest generation hardware wallet. Nano X can have up to 100 coin applications installed at the same time and is compatible with iOS and Android mobile devices.
Ledger Nano S – The most sold hardware wallet. Nano S has good security and supports many currencies.
Hardware wallets are a must-have for cryptocurrency investors. They are the only method in which private keys remain completely offline, making them immune to all types of remote hacks.