WHAT IS A HARDWARE WALLET?
Hardware Wallets such as the Ledger Nano S or Trezor, are cold storage devices which generate and store your private keys within the device, keeping your important data offline as a means of reducing internet-based threats. Hardware Wallets are widely touted as the most secure category of cryptocurrency wallets on the market today. With Hardware Wallets, you have actual ownership of your coins - unlike hot wallets or exchanges, where you do not have access to your private key. When you do not own your private key, you do not own your cryptocurrency.
The purpose of a Hardware Wallet is to separate your private keys from a potentially vulnerable computer or smartphone. It's generally accepted that computers and smartphones are not the most secure devices available. Paper wallets stored somewhere like a safe are a secure means of storing Bitcoins, but can be exposed to computer or smartphone vulnerabilities when importing the private keys to the computer. By generating private keys within the device and keeping those private keys isolated within the device, Hardware Wallets are a safer and more convenient option than paper wallets.
WHAT IS A PRIVATE KEY?
A Private key is the password that allows for the decryption of transactions generated from your Public key (Bitcoin address). The private key is your authorisation to send cryptocurrency, and the public key is your receiving address. Hardware wallets allow a user to generate and store their Private key offline. Set up of a Hardware Wallet is fairly simple for most users. Offline generation and storage of private keys minimises the risk of computer or internet-based exploits interacting with your device.
A cryptocurrency user with complete control over their private key will have complete control over the digital assets associated with the private key.
WHAT IS A BLOCKCHAIN?
Ledgers have been used to manage data for centuries, beginning their days as sticks and stones. Paper-based ledgers followed soon after, allowing man to store data more quickly and effectively - but paper would take up too much space, and a fix was needed. In comes the computer; a machine designed to process data using human input. It was decades before computers were built to be smaller than the data-filled piles of paper they intended to replace, but in that time computer processing abilities drastically improved - and show no signs of slowing down.
So why is this little history lesson important? Well, the Blockchain is the next big step in data processing, data security, and data integrity. It is data management without the intermediaries/trusted third parties.
Blockchain is a technology that’s fundamental use case is storing and distributing data securely over a decentralised network. This decentralised network is built upon a series of computers called nodes. Each node verifies all new transactions by comparing them to the full history of the blockchain, making sure all transferred data is accounted for and no unverified data is generated. These nodes then broadcast their findings to a network of peers to be checked, verified and eventually reach consensus. When consensus is reached in the system the verified information is passed on to the miners who lump the information into blocks and attach them to the prior block of data forming a chain. This is usually done through a complex system called ‘proof of work’ where the computer must use large amounts of power to perform difficult mathematical equations as fast as possible to be the first in the system to provide a correct hash value and add the block to the chain, this process is rewarded with newly generated tokens and the ability to claim transaction fees.
The most popular example of a Blockchain in action is Bitcoin, a digital and decentralised currency using blockchain technology. The blockchain's capabilities, though, extend far beyond digital currencies and can be used for things such as; digital assets, time-stamping documents, gem tracking, medical data, logistics data, inventory management, decentralised cloud computing, and many more.