The Use of Hardware Wallets in Crypto Investing and Trading

2022/08/08 10:00:02

Since the creation of Bitcoin, and especially since the inception of DeFi, there have been a number of high-profile hacks and exploits that have taken place. Some of these have been due to poorly implemented security on exchanges or wallets, while others have been the result of malicious individuals or groups looking to take advantage of people in the space.

This article will cover the use of hardware walets in crypto, and show you what to pay attention to when choosing a wallet that will fit your needs.

Crypto Security Matters!

In any case, it's important to take your security seriously when dealing with your investments, especially so when we are talking about cryptocurrency - after all, no investment will become profitable if it disappears!

You may have heard that the best way to secure your cryptocurrency is to own a hardware wallet, but you may not know all the ins and outs of it. Let's check out what a hardware wallet is, how it works, and explore all the other associated terms you might not be familiar with.

What Is a Hardware Wallet?

Hardware wallets are physical devices that are designed to be a secure way to store your private keys. They're often considered to be the most secure type of cryptocurrency wallets, as they're not connected to the internet and therefore not susceptible to hacking.

They are considered the pinnacle of crypto safety and security, but suffer from a lack of flexibility due to them being offline.

How Does a Hardware Wallet Work?

A hardware crypto wallet stores your private keys on a physical device, and signs transactions offline. This means that even if your computer is hacked, or you lose your hardware wallet, your crypto will still be safe.

In order to access your crypto, you need to connect your hardware wallet to a computer and enter your PIN. Once you've done this, you'll be able to view your balance and sign transactions.

Most hardware wallets also have a backup feature, so that if you lose your device, you can still access your crypto. This is usually done by writing down a seed phrase, which is a list of words that can be used to regenerate your private keys.

What Is a Seed Phrase?

A seed phrase, also sometimes called a mnemonic phrase or a recovery phrase, is a list of words that can be used to regenerate your private keys. This is useful if you lose your hardware wallet, as you'll be able to use the seed phrase to generate a new private key and access your funds.

It's important to note that you should never store your seed phrase online, as this would defeat the purpose of having a hardware wallet in the first place!

What Is a Private Key?

In order to access your cryptocurrency, you need a private key. A private key is a long string of characters that is unique to your wallet, and is used to sign transactions. If someone were to get hold of your private key, they would be able to access and spend your crypto.

Is Hardware Wallet a Cold Wallet or a Hot Wallet?

There are two main types of wallets - hot and cold wallets.

Hot wallets are connected to the internet and can therefore be accessed from anywhere. They're convenient for day-to-day use, but they're also more vulnerable to hacking.

Cold wallets are offline and not connected to the internet. This makes them much more secure, but also more difficult to use. Cold storage devices are often used for long-term storage of crypto, or for larger amounts that you don't need to access regularly.

Hardware wallets are cold wallets, as they're not connected to the internet. This means that they're much more secure than hot wallets, but also more difficult to use.

When Should You Get a Hardware Wallet?

The main benefit of a hardware wallet is that it's much more secure than a hot wallet. This is because it's not connected to the internet, and, therefore, can't be hacked.

Another benefit is that hardware wallets are usually easy to use, even for people who are new to cryptocurrency. They usually come with a user-friendly interface and clear instructions.

If you're serious about investing in cryptocurrency, then a hardware wallet is a good choice for you. They're also a good option if you're looking to store large amounts of crypto, or if you want to use your crypto for day-to-day purchases.

In essence, if the amount of crypto that you intend to hold justifies the price of the hardware wallet, you should buy it.

What Is the Best Hardware Wallet?

There are a few different types of hardware wallets, and they all have their own features and benefits.

The most popular type of hardware crypto wallets come from companies called Ledger and Trezor. In fact, if you've heard of hardware wallets, you have most likely heard of Ledger Nano S, or Trezor Model T as well.

Of course, there are other companies that offer hardware wallets, but they are usually more niche (either aiming at the customers looking for more affordable solutions, or looking for additional functionality regardless of the price) than the aforementioned two.

How to Pick a Hardware Wallet

There are several hardware wallets to choose from, but consider the following characteristics when making your selection.

Coin Compatibility

Different types of hardware wallets handle various coins. Some wallets support only the largest networks like Bitcoin and Ethereum. Others work with hundreds or even thousands of different coins.

Make sure that the hardware wallet you choose supports the cryptocurrencies you want to use. If you're not sure which coins to invest in, choose a wallet that supports many different currencies.

Functionality

You should select a hardware wallet based on the type of service you want it to provide. If you are expecting a lot of transactions, you may want a wallet with a large color screen in order to see everything more clearly and cut on eye strain.

On the other hand, if your hardware wallet will be used rarely, and should act as a place to store your crypto that doesn't transact much, you might find a smaller and simpler device much more suitable.

Price

Prices for hardware wallets can range anywhere from $50 to $200. When you compare prices, be sure to consider the features and functionality that each wallet offers.

Some more expensive wallets offer features that may be unnecessary for your needs, while others are very basic and lack certain features that you might find important.

OS Support

Most hardware wallets support regular operating systems like Windows, MacOS, and Linux. However, if you are trying to find a crypto hardware wallet device that could pair up with a mobile device, you need to make sure that it supports Android, iOS, or both.

Additionally, some hardware wallets also have Bluetooth capability. That can make mobile transactions much easier, since you won't have to connect your phone to the wallet every time you want to make a transaction.

Are Hardware Wallets Safe?

Hardware wallets are considered to be some of the safest ways to store your cryptocurrency. They're offline, which means that they can't be hacked. Additionally, most hardware wallets provide users with a number of security features, like the ability to set up a PIN code or password, that further protect your digital assets.

Of course, no system is perfect, and there have been a few instances of hardware wallets being hacked. However, these cases are usually the result of user error, like not properly securing the device or losing the PIN code.

If you take proper precautions with your hardware wallet, it will be a the safest way to store your cryptocurrency.

Things NOT to Do With Hardware Wallets

While hardware crypto wallets are indeed the safest option to store crypto, there are a couple of things you must not do if you want to keep your wallet safe and secure.

Buying a Used Hardware Wallet

This might be tempting, especially if you're looking for a cheaper option, but it's not worth the risk.

There's no way to know if the previous owner of a used hardware wallet wiped it clean of all crypto before selling it to you, even if you are buying your device from a reputable seller. Additionally, the seller may have set up a backdoor that would give them access to your crypto even after you've wiped the device.

In most cases, it is just not worth the risk. If you want to buy a hardware wallet, only buy it new from a trusted manufacturer or retailer.

Not Backing Up Your Hardware Wallet

Just like with any other type of device, it's important to back up your data in case something goes wrong.

Most hardware wallets come with a seed phrase that can be used to restore your wallet if it's ever lost or stolen. However, it's important to make sure that you backup your seed phrase in a safe place, like a fireproof safe or safety deposit box.

Additionally, some hardware wallets allow you to set up a PIN code as an extra layer of security. If you do this, make sure to also write down the PIN code and store it in a safe place.

Perform Firmware Due Diligence and Responsible Updates

Most hardware wallets come with regular firmware updates that add new features and improve security. It's important to remember that the firmware that drives your hardware wallet device is an important security factor.

Most hardware wallet providers regularly offer firmware updates designed to improve security and ease of use. However, before you update your firmware, it’s best to ensure that any firmware update you install to your device doesn't allow any third-party access to your keys. 

When in doubt, check the hardware supplier's official firmware update documentation, as well as third-party news sources or information regarding the update to make sure it's secure.

Picking the Wrong Hardware Wallet for Your Needs

There are a lot of different hardware wallets on the market, and it's important to pick the one that's right for you.

Think about what features are most important to you and make sure to choose a wallet that offers them. Additionally, check reviews before buying a wallet to get an idea of how well it works and whether or not other users have had problems with it.

Downloading Fake Software

When you're setting up your hardware wallet, you'll need to download the software that goes with it. Make sure that you only download this software from the official website of the wallet manufacturer.

There have been instances of fake versions of this software being released that contain malware. This could allow someone to gain access to your device and steal your crypto.

Only download software from the official website to be safe.

Losing Your Hardware Wallet

This might seem obvious, but it's important to keep your hardware wallet in a safe place. If you lose it, there is no way to recover your crypto.

Some people choose to keep their wallets in a safety deposit box or fireproof safe. Others keep them in a drawer or other hidden location.

Whatever you do, just make sure that you know where your wallet is at all times and that it's well-protected.

Hardware Wallets are Not for Everyone

While hardware wallets are the most secure way to store your crypto, they're not for everyone.

  • If you're not comfortable with the idea of keeping your crypto offline, then a hardware wallet might not be right for you. Keeping your crypto on an exchange wallet, a regular software wallet, or even by using paper wallets are easier options.
  • For those that want to have their funds ready for trading or swapping with minimal fees, exchange wallets might be a more intuitive option for you.
  • For those that want to have custody of their wallet keys but still don’t want funds kept offline, a regular software wallet might be a good option.

With KuCoin catering to your every need, you can choose to store your funds on the exchange, or on a brand new KuCoin Web3 wallet.

Additionally, hardware wallets can be expensive, so if you're not willing to spend the money, you might want to consider another option.

Ultimately, everyone uses their crypto assets differently, which means that they need a different kind of wallet that suits their needs. No matter what type of wallet you choose, it's important to do your own research (DYOR) and pick the one that's right for you.

Bottom Line

Hardware wallets are the most secure way to store your crypto, but they're not without their risks. Make sure to invest time in checking which wallet suits your needs best, how to properly set it up, and how to keep it safe.

This will ensure that your crypto is well-protected against any potential threats.


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