Investing in cryptocurrencies comes with the responsibility of handling your assets and ensuring you’re keeping them in a safe place. Buying and selling doesn’t happen instantly, without having a place to put your coins for a while to withdraw them later. So, if you want to buy Bitcoin p2p with a credit or debit card, you need to store the coins somewhere safe.
There are a few types of storage for crypto, from custodial wallets to cold and hot wallets. While some offer more accessibility, others are highly vulnerable to being hacked. At the moment, the best hardware-based digital wallet is less prone to being affected by cybersecurity concerns.Â
Let’s look into the usage of hardware wallets.
Explaining how a crypto hardware wallet works
A crypto hardware wallet is a type of cold storage, meaning cryptocurrencies can be secure offline as the device is simply plugged into the computer, and has a similar look to a USB. These wallets are considered to be safer since they don’t get in contact with software and web viruses.
Hardware wallets work by storing the private key through which you get access to the held digital assets. A private key is a code that acts like a password and protects the assets from hackers or unauthorized access. Although incredibly secure, you can’t regain access to your funds if these private keys are lost or stolen.
Besides the private key, there’s also the public key through which crypto users receive coins into their accounts. These two keys are enabled when someone makes their first crypto transactions, and the public key and the address are both created from the private key.
Why are hardware wallets better than software wallets?
Investors indeed value security more than convenience, but that doesn’t mean software wallets are not used. Here are the main differences between these types of wallets:
- Hardware wallets store the private key in a physical device offline, while software ones keep the private key online;
- A hardware wallet is made for crypto owners who want to invest long-term, while software storages are usually used by small crypto traders who make quick transactions;
Hardware wallets enable self-custody
Hardware wallets allow crypto owners to fully control their digital assets without relying on third-party businesses. You need the private key signed within the hardware wallet and the blockchain to make transactions. While signing the transaction, the user’s private key doesn’t leave the hardware device, which ensures more security.
On the other hand, while storing your assets on a software wallet through a centralized exchange, let’s say the custody and control of your private key are in the hands of the system, which exposes cryptocurrencies to scams and hacks if the exchange is hit or threatened by a cyberattack.
Using a hardware wallet is easier than you’d think
Although all hardware wallets are based on the same systems, the variety on the market offers wallets with plenty of interesting features and usage requirements, so you need to follow the manufacturer’s instructions to learn to use them properly. Here are the steps to use your hardware wallet:
- Visit the official websites of the most reliable hardware wallet companies and choose one that suits your needs. Download and install the program on your device;
- Connect a hardware wallet to the software on your device and follow the instructions to install it. You must create a recovery seed phrase for restoring access to your assets if the hardware wallet gets lost;
- Add funds to your wallet by inserting your public address and adding whatever number of cryptocurrencies from an exchange or another wallet;
- Confirm the transaction details and provide additional security measures through a PIN, for example. Remember always to disconnect the hardware wallet from your devices after the transactions are completed;
Keeping your hardware wallet secure
While using your hardware wallet is easy, keeping it safe in the long term might be challenging, considering the many risks around us. Some general safety principles include the following:
- Avoid telling people you own cryptocurrencies only if you’re part of a crypto community;
- Make sure to protect your real identity and make it difficult for others to track you;
- Keep your hardware wallet in a bank, especially if you own many cryptocurrencies;
- Avoid carrying your recovery sheet with you or at home and keep it in a bank vault;
The recovery sheet contains a 24-word recovery phrase you must write down. They aim to restore access to your cryptocurrencies if your hardware wallet is lost or destroyed. You can also use this recovery phase if you’re tuning in to a new device or upgrading the actual one. The main issue with this phrase is that anyone getting access to it can get into your account, for which you need to do the following:
- Don’t take a picture of the sheet;
- Don’t store it on your computer or smartphone;
- Don’t share it with anyone;
- Keep it in a safe place;
- Don’t use a preconfigured device to generate it;
Beware of the man in the middle and blind signing
Moving your funds or withdrawing them can be risky in terms of attacks. For example, the man-in-the-middle attack is one of the traps you mustn’t fall into. In this case, someone controls your screen and might show you the wrong address when sharing it to be the recipient of a payment to return your funds to their wallets.
There’s also the risk of blind signing when you’re transacting with crypto, and the details on the screen might’ve been compromised, and you happen to agree to all policies presented. This is why thoroughly verifying the information on the screen is necessary before approving any transaction.
Final thoughts
Getting a wallet for holding your crypto assets can be a challenge considering all the options on the market. But when choosing the proper one for your needs and plans, it’s best to consider safety first and then accessibility because a secure wallet, which is usually a hardware one, will help you withdraw your money and keep your data safe.
For more information on cryptocurrency and how to understand crypto for yourself, check out the Money Girl podcast. In episode 710, you’ll learn what cryptocurrency is, how to buy it, how it gets taxed, and a strategy to start stacking coins. Listen in the player below.Â