Store Bitcoin securely with a hardware wallet: This is how it works!
Apr 28, 2023
A Bitcoin hardware wallet is a physical Bitcoin wallet that provides a high level of security for Bitcoin investors, as the wallet's private keys are stored offline, reducing the risk that hackers could steal your coins.
Most hardware wallets resemble a USB stick that you plug into your computer.
The idea of the hardware wallet is to make access to private keys as difficult as possible in order to protect users from possible attacks.
Unlike traditional software wallets, a hardware wallet protects users by not having the wallet in an app or on the computer, but also by carrying another device with you.
The function of the hardware wallet is still the same as a normal Bitcoin wallet - you have a private and public key and can use it to store, receive and send Bitcoin.
The main difference is that the private key management is located on the hardware wallet and you have to confirm actions to operate the wallet that way. This means that instead of doing everything in a software wallet, you also have to carry the hardware wallet as a device to confirm the respective steps and have complete control over your Bitcoin.
Thus, the security of a wallet is divided into several parts. On the one hand, you always have an interface where you can check your balance, order transactions or make settings for the hardware wallet. On the other hand, you have the hardware wallet, which is the key to operate the Bitcoin in the software wallet.
With software wallets, everything is always in one place and thus there is a risk that someone could gain access to the wallet interface. With a hardware wallet, this is only possible if you have access to both components.
There are three main types of Bitcoin hardware wallets: wallets with USB connection, wallets without internet connection and card-like hardware wallets.
The widest range of hardware wallets is available in the world of USB-connected devices.
These often look like a USB stick and can be easily connected with a cable or directly to the computer. Most hardware wallets with a USB connection have control panels on the device itself, which can be used to confirm transactions.
The hardware wallet also has software that allows users to check the balance, order a transaction, or make settings on the hardware wallet.
There is already a wide range of providers that sell hardware wallets with USB ports. For example, the BitBox02 from Shift Crypto or the Model T from Trezor are very popular.
If you would rather have a hardware wallet that works without an Internet connection or performs the essential functions of the wallet offline, then you will find yourself in the world of hardware wallets without an Internet connection.
Essentially, the wallet's functions are still the same as a hardware wallet with a USB connection, but important actions such as signing a transaction or verifying private keys take place offline.
This is possible by saving the transaction as a file on a memory card and sending it offline between the app and the hardware wallet. Another option is to package the same file in the form of a QR code, and by scanning this code, exercise the data transfer offline.
In both cases, users must confirm the transaction twice, once in the hardware wallet and then in the app.
The selection of providers for hardware wallets without an Internet connection is not as large as for hardware wallets with a USB connection. The most popular models are the Coldcard from Coinkite, which looks like a normal calculator, or the Passport from Foundation Devices.
These types of hardware wallets are definitely options for advanced users.
Now let's take a look at the pros and cons of hardware wallets.
Security: Hardware wallets are essential for investors who want to store large amounts of Bitcoin. They make it virtually impossible for hackers to access your Bitcoin and are the preferred storage method for experienced Bitcoin investors. The biggest advantage of hardware wallets is the security of your Bitcoin.
Handiness: Hardware wallets are easy to carry around and you can use them to access your Bitcoin securely from anywhere.
Cost: Unlike software wallets, hardware wallets are not free. Prices are usually between 50 and 100 euros. This can make them less accessible for some users.
Learning curve: Setting up and using hardware wallets can be more complicated compared to other types of Bitcoin wallets. Users need to familiarize themselves with the technical aspects of the device before they can use it effectively.
To keep your Bitcoin safe in a hardware wallet, pay attention to the following tips.
Most hardware wallets come with a recovery phrase that allows users:inside to access their Bitcoin again in case they lose or accidentally damage their device.
If your hardware wallet offers this, you should make sure that you do not keep your recovery phrase together with your wallet. Keep them in separate places, because both together would allow a thief to access your coins.
To make sure you get a genuine hardware wallet device, it's best to buy your wallet directly from the manufacturer.
Also, when you receive your hardware wallet, check the condition of your package and the device to make sure it hasn't been tampered with or damaged.
It is advisable to use more than one hardware wallet to store your Bitcoin investments, especially if you have accumulated a large amount. This way you can diversify the risk of losing coins because one of your wallets was stolen or otherwise compromised.
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Hardware wallets offer a very secure method of storing your Bitcoin. However, this is not 100% guaranteed. Therefore, it is possible that a hardware wallet can be hacked. For this reason, it is hugely important to always check that the wallet is in good condition when you receive it. The most likely hacks are on the device itself.
Compared to software wallets, a hardware wallet is more secure because your private keys are stored offline.
Unless an:attacker:in gains physical access to your device, it is very difficult for someone to steal your coins.
Even if you have the most secure password in the world and all your Bitcoin are in different hardware wallets, you are still a point of attack. Accordingly, make sure that you never write down the password on a post-it note or that the access to the wallet is publicly visible.
Also, never click on emails or links on the internet that ask you to connect your hardware wallet to run something.
There is no general answer to this question, because there are different types of hardware wallets with different security features for different types of investors.
What we can say, however, is that any hardware wallet is an upgrade from software wallets and it is definitely worth backing up your Bitcoin in a hardware wallet.
