When you’re new to cryptocurrency, hardware wallet security can be daunting. But it becomes easier once you understand a few basic principles. Ensuring that your assets are safely and securely stored is vitally important when you own cryptocurrency, as you aren’t relying on a third party to safe keep your funds. In this blog post, we’re going to answer the most common questions we get regarding hardware wallets, so you can gain a better understanding of what they are, how they work, and why you need one!
WHERE ARE MY COINS ACTUALLY STORED?
You may be wondering: are my coins actually stored in the wallet?
The answer is no!
Cryptocurrencies are never stored within the hardware wallet itself, they always live on the blockchain. The hardware wallet merely stores your private key. That private key opens the lock to your address on the blockchain where your assets actually live. Since the blockchain is everywhere, all you need is your hardware wallet (private key) to interact with your tokens.
WHY DO I NEED A HARDWARE WALLET?
There’s no doubt that exchanges are a convenient way to buy and manage cryptocurrency: you simply have to log into your account via an application or website in order to view your account balances and make transactions. But when you decide to leave your cryptocurrency on an exchange, you’re trading safety for convenience.
You see, because exchanges hold billions of dollars worth of cryptocurrency, they are enticing targets for hackers. Overall, it is estimated that at least $11 billion worth of cryptocurrencies has been stolen since 2011.
When you store your assets on an exchange you rely on them to keep it safe. Even if they follow all the safety guidelines, they will forever be in an arms race with criminals. Storing your assets on an exchange means that the exchange is simply giving you an IOU on those assets, you don’t control them yourself.
There is one sure way to keep your assets safe: hardware wallets. These devices allow you to retain the ownership of your private key, while also making it easy to trade with a wide range of cryptocurrencies when you safely connect to a computer. By securely switching between the functionality of hot and cold wallets, you can rest assured that your crypto wealth is in your hands, even if you lose the device.
WHAT MAKES A HARDWARE WALLET SECURE?
Your private keys are generated and stored on the hardware wallet which are then protected by a PIN and an optional passphrase. Should a thief take possession of your hardware wallet, it’s near impossible for them to extract your keys. The keys are never exposed to the internet so they can’t be stolen or copied. That’s why it’s known as cold storage.
If your hardware wallet is lost, the assets are backed up with a single recovery phrase. A recovery phrase, also known as a seed phrase, is a list of words that acts as the password to your private key. You can use your recovery phrase to move your keys to a different hardware wallet.
CAN A HARDWARE WALLET BE HACKED?
Every time you move your cryptocurrency from an Internet-connected device to a hardware wallet, you are trading a Pandora’s Box of digital threats for the more predictable, controllable risks of the physical world.
But using a hardware wallet doesn’t make you immune to threats. Of course, everything can be hacked. If someone tells you otherwise, they either don’t understand that information security is a constant battle, or they’re simply lying. So it’s important to apply basic security principles to ensure your assets are protected. Read here for more information.
To check out the full range of wallets Coinstop offers, please check out our store. And if you would like further one-on-one support, we offer in-depth remote consultations. You can book in here.