When we hear the word ‘wallet’ we often think of a pouch wherein we can store physical money. A cryptocurrency wallet is a program or a device that stores your public address and private key. It can also be used to receive and spend your crypto. Hardware wallets are one of the most convenient and safest options out there for storing your cryptocurrency. A hardware wallet is a type of cryptocurrency wallet where you can store your private keys in a secure physical device. The cryptocurrencies stored in the wallet are kept offline so that they can’t be hacked.
The wallets can be broadly divided into two categories – Hot Wallets and Cold Wallets.
Hot Wallets: Hot Wallets are wallets that run on internet connected devices like a computer, mobile phone or tablet. While it is easy to transact using these wallets, they are vulnerable to hacks.
Cold Wallets – Cold Wallets are crypto wallets that are not connected to the internet and hence they are safe from hack attempts. If you want to store away and hold on to your Bitcoins safely, then you can use a cold wallet to keep them safe.
Hardware wallets combine the safety of cold wallets, along with the ease of transactions of hot wallets. Hardware wallets act as a flash drive and store your private keys. The device is secure enough that you can even use them with a device you don’t trust.
How Hardware Wallets secure your private key?
The most important thing that you must remember is that the private key never leaves the hardware wallet. The entire transaction validation process is done within the hardware wallet itself and not on the computer. Traditional offline wallet clients only use the private keys from your regular hard drive or device storage. Unfortunately, what this means is that they are easily available and vulnerable to attacks. You can always store the private keys in an encrypted hard drive, but to use that you will need to decrypt it, which will instantly make your keys vulnerable.
Hardware wallets, on the other hand, do not expose the private keys even during transactions. This brief description will show you how it works. The hardware wallet will ask the wallet software running on your computer or smartphone to provide the payment details like the requested amount and target address. The moment the hardware wallet receives those details they will await user confirmation, sign the transaction and then eventually send back a digital signature to the software. This will complete the transaction.
Each wallet has its pros and cons and different wallets are built to solve different problems. Some wallets may be geared towards security, while some wallets may be more focused on ease-of-use, but hardware wallets look after both these needs. These are some of the best and the most trusted hardware wallets out there for storing your Bitcoins
The Paris-based Ledger is one of the most respected and credible companies in the hardware wallet space. They leverage their proprietary technology to develop security and infrastructure solutions. They have a production facility in Vierzon, France and various offices in San Francisco. The firm launched in 2014 and their wallets have sold 10 lakh units in more than 165 countries. At the heart of their innovation life a distinct operating system called BOLOS, which they either integrate to a secure chip for their wallets or a Hardware Security Module (HSM) for various enterprise solutions.
Now let us take a look at their two flagship wallets Ledger Nano S and Ledger Nano X.
Ledger Nano S
Ledger Nano S is a widely used hardware wallet developed by the French company Ledger which was released in August, 2016. It connects to any computer through USB and embeds a built-in OLED display to double check and confirm each transaction with a single tap on its buttons. It is architectured around a secure element and built on top of the BOLOS platform, a powerful and flexible Operating System.
Ledger Nano X
The Ledger Nano X is Ledger’s newest hardware wallet. It has a legitimate claim of being the best hardware wallet in the market right now. It looks really good and is very secure. The main benefit is that it has Bluetooth, making it the first hardware wallet that connects with iOS devices. Ledger Nano X has superior security thanks to the use of two chips. The most significant difference between Nano X and Nano S is that the former can hold multiple cryptocurrencies at once.
Trezor was the first legitimate and secure Bitcoin hardware wallet. The wallet was built by Satoshi Labs and was truly pioneering in every sense of the word. It is not the same as Ledger in matters of look since it is like a small calculator with an OLED screen. You can use the Trezor wallet with Android devices and with apps such as Trezor Wallet, Mycelium and Multibit HD. Trezor builds an isolated environment for offline transaction signing. It minimizes the risk of private key discovery, even if the PC is infected by malware. Every single Trezor wallet has a PIN code that never leaves your wallet. This simple feature makes sure that even if the computer that the wallet is using is compromised, your PIN will not get stolen. The PIN system in Trezor also has an inbuilt system that prevents any brute-force attempts. After each incorrect guess, the waiting time between the guesses is raised by a power of two. The entire wallet is backed up by the 24 words generated on setup. The original 24-word seed is generated using RNG (Random Number Generator) from the device and the computer. The seed is generated offline and displayed on the wallet’s screen, which ensures that the seed is never on an internet-connected device. If you ever lose your Trezor wallet, then you can simply recover it with the 24-word seed. Following are the two flagship wallets of Trezor.
Trezor One is one of the most popular hardware wallet out there. Launched in 2014 as the first Bitcoin hardware wallet, Trezor One offers secure Bitcoin storage and as well as the ability to spend with the convenience of a hot wallet. Trezor One is a small, thumb-sized device with a very sleek design which is extremely simple to use. It can be used on all devices, provided, the platforms are compatible. It never exposes your private key and the randomly generated pin code keeps the device safe and secure. Trezor One offers everything needed to protect your Bitcoins together with very advanced features.
Trezor T is the premium version and next generation cryptocurrency hardware wallet manufactured by Satoshi Labs. It is an improved version of Trezor One with a better screen. The wallet also lacks any buttons making it completely touchscreen. In addition to the functionalities of Trezor One, it has a colored touchscreen for secure on-device input, modern design, an SD card slot and some other advanced features. It is extremely simple to use and has more coins available than Trezor One.
KeepKey is a USB device that stores and secures your Bitcoins. It was founded in 2015 by Darin Stanchfield and its headquarter is in the US. In 2016, they acquired the Bitcoin wallet Multifit. Later, in August 2017, the wallet was acquired by Shapeshift, the Switzerland-based exchange founded by Eric Voorhees. Stanchfield heads the company as the CEO and Ken Hodler as the CTO. KeepKey is one of the most well-built wallets out there. When you entrust KeepKey with your money, each and every Bitcoin transaction you make must be reviewed and approved via its OLED display and confirmation button. It also has a unique recovery feature utilizing a rotating cipher to restore private keys with a BIP 0039 recovery seed. This means it is not necessary to store your private keys on KeepKey. The recovery process is secure enough so that KeepKey can be used as a transaction device for paper backups. The design of KeepKey is user-friendly and is built to withstand wear and tear.
Desktop wallets are downloaded and installed on your computer. These wallets are meant to be used on your computer. If privacy is your main concern, the Bitcoin core wallet is a good option since it does not rely on third parties for data.
Electrum: Electrum is a light weight Bitcoin wallet for Mac, Linux and Windows. Electrum was created in November 2011. Electrum is a support for hardware wallets such as Trezor, Ledger Nano and KeepKey. It secures Bitcoin storage using an offline computer. Electrum is a good option for both beginners and advanced users.
iOS and iPhone Bitcoin Wallets
Apple banned Bitcoin wallets from the App Store in February 2014, but reversed its decision a few months later. Luckily, there are now plenty of options for iOS users.
BRD, along with Copay is considered as the best Bitcoin wallet for iPhone. It gives the user full control over their private keys. It also has a clean interface which makes the sending and receiving of Bitcoins a pleasurable and super simple process.
Edge is an easy-to-use Bitcoin wallet for iPhone and Android. Its familiar login feature makes, using the app, an easy task for people new to Bitcoin. The wallet also creates automatic backups, so you don’t have to worry about the technicalities of performing manual wallet backups.
Android Bitcoin Wallets
There is a large selection of Android wallets. Since Bitcoin wallets were originally banned by Apple, developers spent much of their time developing for Android.
BRD, the great iPhone Bitcoin wallet, recently released an Android wallet. It offers the user control of private keys, an easy-to-use interface and passcode support.
Samourai is the best available Android wallet. It has various features, the best privacy for your Bitcoins and its developers are constantly working to add the latest Bitcoin features to the wallet. Samourai Wallet has been around for more than three years and it’s code is fully open source.
Mycelium is the most popular Bitcoin wallet on Android. It is very easy to use for sending and receiving payments. Backing up your wallet is also simple, since Mycelium makes it very clear with setup and backup instructions.
Blockstream Green is the native Android version of Green Address. It is a multi-signature wallet that also supports hardware wallets like Trezor and Ledger.
Bitcoin Wallet or “Schildbach Wallet”, was the first mobile Bitcoin wallet. Bitcoin wallet is more secure than most mobile Bitcoin wallets, because it connects directly to the Bitcoin network. Bitcoin wallet has a simple interface and just the right amount of features, making it a great wallet and a great educational tool for Bitcoin beginners.
Failures In Hardware Wallets
There are some ways in which a hardware wallet could fail to protect your Bitcoin. These are as follows:
- Malware Swaps Recipient Bitcoin Addresses – A Hardware wallet won’t protect you from being tricked into sending Bitcoin to the wrong address. For example, malware on a PC could monitor for high value transactions and then swap out the recipient’s authentic Bitcoin address for an address controlled by the attacker. When the stakes are high, multi factor confirmation of a recipient’s Bitcoin address is recommended.
- Insecure RNG (Random Number Generator) – Hardware wallets rely on the security of an RNG, often embedded in hardware, to generate your wallet’s private keys securely. Unfortunately, it is very difficult to verify the true randomness of the RNG. An insecure RNG may create wallet keys that can later be recreated by an attacker, by generating pseudo-randomness that would seem statistically indistinguishable from true randomness yet still be predictable to an advanced attacker. An RNG may become insecure as a result of malicious weakening or an unintentional mistake. This failure mode is common to any wallet generation procedure in which the true randomness of the source of entropy being used cannot be verified.
- Imperfect Implementation – The security of all computing devices relies on the quality of their implementation. Hardware wallets are no exception. Bugs at the software, firmware or hardware level may allow attackers to break into a hardware wallet and gain un-authorized access to secrets. Even if the design is perfect, proving the security of a hardware or software implementation is a very hard, mostly unsolved problem. Till date, no wallet in existence is implemented using provably correct software.
- Compromised Production Process – Even a perfect software and hardware implementation of a hardware wallet would be vulnerable to a corrupt production process that introduces intentional or unintentional holes into the final product. The introduction of hardware backdoors is a real concern for high risk financial and military applications.
- Compromised Shipping Process – A compromised fulfillment process may substitute or modify secure devices for superficially identical but insecure replacements. Government programs that intercept hardware and modify them in route to insert backdoors are known to exist.
Theft and Scams
To avoid theft, scams and any other loss of funds, follow these three basic principles:
- Generate your private keys in a secure, offline environment.
- Create backups of your private keys. This helps to protect against the loss of your Bitcoins due to hard drive failure or some other problem or accident. Ideally, you should have a duplicate set of backups kept off-site to protect against the possibility of fire, robbery etc.
- Encrypt wallets to provide additional security. This helps prevent the physical theft of your funds in the event that your device or hardware wallet is stolen.
Securing your Bitcoins properly is the most important step for any Bitcoin user. With Bitcoin you have the privilege but also the responsibility to safeguard your own money.
There have been countless scams related to Bitcoin that could have been prevented if people would not have entrusted others with their Bitcoins.
No matter which wallet you choose always remember that your Bitcoins are only safe if the private keys are generated securely, remains a secret and most importantly is controlled by you alone. Be responsible and you will be saved from every theft and scams related to Bitcoins.