The evolution of technology has revolutionized all aspects of life, including how we handle money. Compared to the past when we used to carry loads of paper money around, technology has introduced a cashless society where money is handled electronically and digitally.
The growth of blockchain and cryptocurrencies has further emphasized the digital element in the financial sector. One of the main topics that dominate blockchain and cryptocurrencies is the security of digital assets from rogue online actors like hackers, theft, and fraud. Cryptocurrency exchanges store members’ assets offline in cold storage or hardware wallets to secure users’ funds.
What are hardware wallets?
A hardware wallet is a physical, electronic device used to store cryptocurrencies. You can connect to a computer through a USB portal and then send cryptocurrencies from the wallet online. These devices are used to store large amounts of coins to keep them away from online hackers.
How do hardware wallets work?
Unlike regular wallets, hardware wallets do not store the coins but instead secure the public and private keys used to access the coins on the blockchain. As a result, hardware wallets act like safe boxes whose content can only be accessed using private and public keys.
When activating the device, a user needs to set up a pin that can be used to access funds in the hardware wallet.
Importance of cryptocurrency hardware wallets
Hardware wallets are used to store cryptocurrencies offline prevents loss through hacking, theft, or other forms of fraud. Several benefits come with using a hardware wallet compared to traditional online wallets. These include:
- Multi-currency support
Hardware wallets are not confined to any specific cryptocurrency but can be used to store several cryptocurrencies. Many hardware wallets are compatible with up to 10 different cryptocurrencies.
- Pin increases security
In addition to the private keys the secure the cryptocurrencies, the hardware wallet itself is secured by an encrypted pin, generated by the users, and only known to the user. The device will block itself if you try keying a wrong pin thrice. To further ensure the safety of the stored funds, the device deletes all private and public keys.
- Secure private keys
Hardware wallets ensure that private keys do not reach the computer, which is always the target for hackers. Therefore, users only need to put private keys in their hardware wallets.
- Transaction verification
All transactions requiring funds from the hardware wallet need to be approved by the owner. The device restricts all transactions from all accounts attached to the hardware wallet until the owner approves. This means no funds can be spent from the users’ accounts without their knowledge and approval. Again, the verification process happens offline, meaning you don’t have to plug the device into a computer.
- Immune to Computer Viruses
Many viruses are ineffective on hardware wallets as they are specifically designed to attach software systems. Hardware wallets are safe to store cryptocurrencies as they are immune to online viruses and malware attacks.
- Open-source
The hardware wallet operates on open-source software, meaning the user needs to validate and approve any operations the device may take. This is another boost to the device’s security and gives users more control over their assets.
Conclusion
Hardware wallets remain to be the safest custody for cryptocurrencies. No incidences of hacking or theft involving hardware wallets have been reported this far. However, there are currently many hardware wallets on the market. Users, therefore, need to exercise due diligence when selecting the right one.