Why you need a hardware wallet for your Bitcoin
There are several different types of wallets available for storing and making transactions with your bitcoin. Each type has a variety of pros and cons, but since security is arguably the most important consideration, a hardware wallet is a must.
A hardware wallet is a small piece of computer hardware that looks like a fob, USB stick, or small digital calculator. It must have a way to connect to the internet, but is kept offline except when authorizing a transfer of your bitcoin to someone else.
Your ownership of a certain number of bitcoins is proven by a “private key” or password, used in combination with your “public key,” which is like an account number or IP address. Keeping that private key entirely private is the only way to ensure the security of your bitcoins.
So, a hardware wallet is a device that keeps your private key safe by not allowing it to be transmitted out of the wallet.
When you want to send bitcoin to someone, you plug your hardware wallet into a computer. You authorize the transaction via the hardware wallet, BUT, the wallet sends only the transaction information to the computer – not the actual private key or password. Once the transaction is sent, you unplug your hardware wallet and keep it offline.
If someone is sending you bitcoins, that transaction (like all transactions) is recorded on the blockchain ledger. It’s there and “in your account” whether your hardware wallet is up to date or not. But, when you want to use that bitcoin, you need that private key from your hardware wallet to make the authorization.
So, what your hardware wallet is really protecting is your private key. That’s the “key” that unlocks your access to your bitcoins on the blockchain.
Some hardware wallets allow you to connect to the internet via Bluetooth and a smartphone, but security officiandos don’t like the lesser security of wireless connections.
If you make a lot of bitcoin transactions, you may want to use your hardware wallet purely for cold storage, transferring a certain amount to a desktop or phone app and making transactions with others using the software apps.
To protect you against loss of your bitcoin if your hardware wallet is lost or damaged, the wallet will generate a series of words that can be used to recover your bitcoin from a new wallet. This series of words is called a “seed.” You can write the words down on a piece of paper or purchase a device specially made for this purpose.
These four hardware wallets are considered top of the line:
BitBox02
Made in Switzerland, this hardware wallet looks like a USB stick flash drive, but about double the width, making the display screen fairly small. It plugs directly into a USB-C port or to a USB-A port using the included adaptor cable. It uses invisible touch sensors for password entry, and you can do offline backups to both microSD card and BIP39 mnemonic. There is a companion BitBoxApp. Like all of the best hardware wallets, the firmware is open-source, so there’s nothing nefarious hidden in the code, and no other software can be installed on the device. BitBox02 has two models: one for bitcoin only and one for multiple digital currencies.
KeepKey
The KeepKey hardware wallet is made by Shape Shift, a company based in the United Kingdom. While about the size of a business card, the display screen is larger than most, and the digits displayed to enter your PIN are easy to read. Transaction info is much smaller, but as with other hardware wallets, you can view that information on a larger screen when you need to. Like all of the best hardware wallets, the firmware is open-source and no other software can be installed on the device. KeepKey supports multiple digital currencies. As of January 2020, KeepKey can generate a 12, 18, or 24 word recovery phrase or you can enable the BIP-39 passphrase setting.
Trezor Model T
Trezor hardware wallets are made by SatoshiLabs of the Czech Republic. The Model T looks like a car fob with a digital touchscreen display and a USB-C cable for connecting to a computer or mobile phone. The firmware is open-source and no other software can be installed on the device. This wallet supports more than 1,000 different cryptocurrencies, and also serves as a password manager and UF2 token. It generates a 12-word recovery seed, and boasts Shamir Backup (SLIP39). According to the Trezor Wiki, “Shamir Backup is a method of splitting the seed into multiple unique shares. To recover the wallet, a specified number of shares has to be collected and used. The feature got its name from Adi Shamir, the author of Shamir’s Secret Sharing algorithm.”
Trezor One
The Trezor One is an earlier model that is about the same size as the Model T, but has a smaller display-only screen, along with two click buttons. The Trezor One uses a USB 2.0 cable connection. While it also supports multiple currencies, it doesn’t support as many different ones as the Model T. The Trezor One can be used as a UF2 token, but doesn’t have the password manager or Shamir Backup features that are included in the Model T.
Ledger Nano Series
The Ledger Nano S and Ledger Nano X hardware wallets are manufactured by Ledger SAS, of France. The Ledger hardware wallets allow you to secure, own, buy and manage your bitcoin as well as 25 other coins & more than 1500 tokens from your smartphone or computer. With more than 1.5 Million units sold all over the world at the time of writing this, you can trust that Ledger hardware wallets, are devices that are trusted by the cryptocurrency community!