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If you’re an experienced cryptocurrency user, you’ll most likely know that hardware wallets are considered the most secure storage option for your digital coins and tokens. But if you’re new to the world of crypto, this is an important lesson. If you’re planning on HODLing digital currency for any length of time, the safest place to do it is in a hardware wallet.
But why are hardware wallets so secure? How do they work and how do you choose the right wallet for your cryptocurrency portfolio? Keep reading to find out.
A hardware wallet is a physical vault designed to offer safe storage for your cryptocurrency private keys. These specially designed hard drives usually connect to your computer or smartphone via USB and, because you keep them offline, provide cold storage for your coins and tokens.
Hardware wallets contain a range of security features to protect your digital currency keys.
They’re protected by a PIN and often include other security measures, such as a screen for viewing transaction details and buttons on the device for manually verifying transactions.
There are essentially two separate parts to a hardware wallet. The first part is a desktop, mobile or web client that’s connected to the Internet and performs nearly all the basic features of an ordinary hot wallet.
This software wallet creates the transactions but cannot sign them – which is where the second part, the physical hardware wallet that contains your private keys, comes in. The transaction must be sent to your offline hardware wallet, verified by you and signed by the device before it can be completed.
A cold wallet refers to any wallet stored offline. Cold wallet storage can refer to a number of methods, such as creating a paper wallet with a QR code, storing a wallet on an air-gapped computer (disconnected from the Internet) or using a hardware wallet. While considered more secure than a hot wallet, cold wallets are often slow to use, require a physical object and can be damaged in ways hot wallets cannot. Hardware wallets are a particular type of cold wallet, popular for their additional security and redundancy features.
Find out more about the different types of cryptocurrency wallet.
Why would you want to choose a hardware wallet over a desktop or online wallet? The main advantage of hardware wallets is simple: they’re widely considered to provide the most secure storage option for crypto coins and tokens.
Unlike web wallets and desktop software wallets, which are exposed to risks like hacking, malware and phishing scams, hardware wallets provide offline storage. Your coins will be safe even if your computer is hacked – your private keys are stored securely in your hardware wallet, not on your PC – and lost or stolen wallets are PIN protected.
In addition, if you lose your wallet, you can restore your coins by using your recovery seed. This is a unique passphrase that you can write down and store in a separate place. This recovery seed allows you to recover your funds if something goes wrong.
There have been a myriad of well-publicised examples of hackers and cybercriminals stealing coins from exchanges and hot wallets, so opting for a hardware wallet is all about peace of mind. If you’re planning on storing a large amount of crypto for any length of time, moving them into a hardware wallet could be well worth your while.
If you’ve decided that offline storage in a hardware wallet is the best option, the next step is actually choosing a wallet. There are several reputable options available, so make sure you consider the following factors when deciding which one is right for you:
By considering these important features, you’ll have a much better idea of which hardware wallet is right for you.
There are several options worth considering when choosing a hardware wallet. We’ve listed the leading contenders below, so click the relevant link to read a full review of each wallet’s features, pros and cons. This should help you get a better idea of which wallet will be the best choice for you.
Ledger’s Nano S is a hugely popular hardware wallet priced at €99 (around AUD$154) at time of writing (November 2018). Connecting to your computer via USB, it features a built-in OLED display and buttons on the device that you need to press to manually verify transactions.
Read our full review of the Ledger Nano S wallet
The Nano S is protected by a PIN and is easy to set up and use. It supports a wide range of popular cryptocurrencies, including bitcoin, Bitcoin Cash, Ether, Ethereum Classic, Litecoin, Ripple and ERC20 tokens. It is well worth a look if you’re searching for a suitable hardware wallet.
The Ledger Nano X is the updated version of the Ledger Nano S. It's available for AUD$199 and improves on its predecessor with a larger screen, and Bluetooth connectivity which lets you use it with mobile phones rather than needing to use a computer.
Read more in our Ledger Nano X wallet review
The Nano X supports over 1,000 cryptocurrencies, and many regard it as a straightforward improvement in all areas on one of the most popular hardware wallets ever built, so make sure to include it in your comparisons.
TREZOR is actually the Czech word for “vault”, which gives you an idea of the type of secure storage this wallet is designed to offer for your digital currency. One of the oldest and most reputable hardware wallets available, the TREZOR provides multiple layers of security for your coins and tokens.
Read our full review of the TREZOR wallet here
It features PIN protection, a 24-word recovery seed, an in-built screen and physical buttons for transaction confirmation. It also supports a decent selection of currencies and sells for €89 (around AUD$143).
TREZOR also offers the Model T, which was launched in early 2018 and supports more than a dozen major cryptos plus any ERC20 token. Boasting a touchscreen, double verification for transactions, PIN protection and PIN lockout, it’s another wallet that prioritises security above all else.
Read our full review of the TREZOR Model T wallet here
You can store bitcoin, Bitcoin Cash, Ether, ERC20 tokens and 10 other currencies on the Model T, but at the time of writing (April 2018) was only available for preorder.
A secure wallet that supports a selection of leading currencies, KeepKey is another reputable name in the world of crypto storage. Launched in 2015, this hierarchical deterministic (HD) wallet stores bitcoin, Bitcoin Cash, Ether, Litecoin, Dogecoin, DASH and Namecoin.
Read more in our full review of the KeepKey wallet
Backed up by a 12-word recovery sentence, the KeepKey supports the storage of an unlimited number of private keys and offers a host of important security features. It retails for US$129 (around $169).
“Minimalist design. Maximum security” – that’s the tagline for this Swiss hardware wallet. Compact and portable, this plug-and-play wallet supports bitcoin, Ether, Ethereum Classic, Litecoin and ERC20 tokens on the Ethereum network.
Key features include two-factor authentication, touch buttons and an LED indicator as well as plausible deniability using hidden wallets and backups. It retails for €59 (around AUD$95) plus €19 (approx. AUD$30) shipping.
Keep the following tips in mind to help ensure the security of your crypto coins and tokens:
If you’re smart about how you manage your funds, a hardware wallet can provide safe storage for your digital currency. The initial outlay of $100 or more may be a stumbling block for some, but if you value peace of mind then this upfront cost could be well worth it.
Images: Shutterstock
Disclosure: At the time of writing, the author holds IOTA and XLM.
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