How hardware wallets provide cryptocurrency security

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What is a wallet

Cryptocurrency hardware wallets are physical devices (often USB devices) that allow you to safely generate and store private keys offline offline (offline).
The world of cryptocurrencies is still very young and poorly regulated.

But a huge amount of money is already being circulated here, and the supervisory authorities ensuring the legality and security of transactions are, as always, not enough, so the risk of hacker attacks and the loss of your own investments are very high.
And if cryptocurrency capitals are hacked and stolen, it is almost impossible to return them.

There are several ways to store cryptocurrency, but not all of them provide money security just like hardware wallets.

A cryptocurrency wallet is a storage medium that allows you to store, receive and send cryptocurrency.
Most cryptocurrencies have their own wallet, then there are also a large number of third-party wallets, also capable of storing a variety of digital currencies.

Any wallet includes

  • Public and private keys that provide access to the coins stored in the wallet.
  • Algorithms that manage keys and allow you to send and receive funds over the cryptocurrency network.

Wallets are “hot” and “cold”

  • Hot wallets have an Internet connection, which makes them more vulnerable to a hacker attack.
  • Cold wallets are more reliable because they do not have Internet access and cannot be hacked on the condition that the physical device does not have any defect.

What is a hardware wallet

A hardware wallet involves the type of “cold” storage of cryptocurrency, which allows you to store and receive funds on physical media (often a USB device).
Hardware wallets generate their own private key (which even the owner does not see) and stores it in internal memory.
The beauty of this wallet is that, using access via a PIN code, it can connect to your computer and the Internet for easy and quick management or exchange of digital currency.
When you finish managing your funds, you can disconnect your wallet from the Internet and put it in a physically safe place, which makes your private keys inaccessible to cyber hackers.
Most hardware wallets have additional features for increased security and easier use, such as a small screen and two-factor user authentication.

Configure and use a hardware wallet

Most hardware wallets have the same setting. To start using, you need to come up with your own pin code and generate a mnemonic (secret) phrase.

Pin

Pin is the second level of protection in case someone takes possession of your hardware wallet.
You must enter a PIN code to access your funds on any computer.
On most wallets, if the PIN code is entered incorrectly several times in a row, all data is erased.

Mnemonic phrase

If the data on the wallet has been erased, damaged or lost, you can still return your money using the mnemonic phrase that was generated when you set up the wallet.
You need to store this phrase in a very safe place, separate from the wallet.
Please note that if you buy a hardware wallet from an unofficial distributor (not recommended), you need to generate your own mnemonic phrase before proceeding with the wallet settings in order to protect your funds.

Recommended Hardware Wallets

The market offers a huge selection of hardware wallets, but only Trezor and Ledger Nano S wallets are the most popular and reliable.

Trezor

Trezor was originally a hardware wallet for Bitcoin. The wallet has a small screen, the cost of the device is about $ 110.The device is compatible with both desktop computers and mobile gadgets, it also has a programmable interface for managing and trading electronic money.
This USB device has physical buttons for scrolling through menus and transactions.

Trezor supported the following cryptocurrencies

  • Bitcoin (BTC).
  • Bitcoin Cash / Bcash (BCH).
  • Bitcoin Gold (BTG).
  • DASH
  • Dogecoin.
  • ERC-20 Tokens.
  • Ethereum (ETH).
  • Ethereum Classic (ETC).
  • Expanse (EXP).
  • Litecoin (LTC).
  • Namecoin.
  • NEM (XEM).
  • UBIQ (UBQ).
  • Zcash.

Ledger nano s

The Ledger Nano S wallet appeared after Trezor, but quickly gained popularity and, according to statistics, was considered the most coveted Christmas present in 2017.
The wallet has a lower cost compared to its competitor – “only” $ 95. The wallet boasts a more sophisticated design than the Trezor.
It is made of stainless steel and equipped with an OLED display. The wallet also has a chrome extension, which makes it easy to view your account, as well as send / receive funds.
The Ledger Nano S wallet also has physical buttons for scrolling through menus and transactions. The big advantage of the Ledger wallet over Trezor is that it supports more cryptocurrencies.

Ledger Nano S could support the following virtual currencies

  • Ark (ARK).
  • Bitcoin (BTC).
  • Bitcoin Cash (BCH).
  • Bitcoin Gold (BTG).
  • Dash (DASH).
  • Digibyte (DGB).
  • Dogecoin (DOGE).
  • Ethereum (ETH) + ERC20 Tokens.
  • Ethereum Classic (ETC).
  • Expanse (EXP).
  • Hcash (HSR).
  • Komodo (KMD).
  • Litecoin (LTC).
  • Neo (NEO).
  • PivX (PIVX).
  • PosW (POSW).
  • Qtum (QTUM).
  • Ripple (XRP).
  • Stealthcoin (XST).
  • Stellar (XLM).
  • Stratis (STRAT).
  • Ubiq (UBQ).
  • Vertcoin (VTC).
  • Viacoin (VIA).
  • Zcash (ZEC).

Trezor or Ledger

Both devices are reliable, trusted wallets with a simple user interface.
They do equally well with the task of safely storing virtual assets. The only significant difference between them is the number of supported cryptocurrencies.
Therefore, decide for yourself which wallet is most suitable for you.

More options

Despite the fact that hardware wallets are the most reliable way to store cryptocurrency, the market also offers other ways to satisfy the needs and requirements of traders and users with small assets.

Cryptocurrency exchanges

Exchanges are often the simplest platforms for the quick trading of cryptocurrency assets.
Although exchanges suggest the fastest way to trade cryptocurrency, they are also the most risky way to store digital money, since such platforms manage and store their users’ private keys inside the system, which makes them the most vulnerable to hacker attacks.
It is not recommended to store large amounts of electronic money on exchanges, especially for a long time.

Computer or mobile e-wallets

Computer or mobile wallets are downloaded to the desktop of a computer or mobile device.
It turns out that access to funds is possible only from the device on which the wallet is installed.
It follows that if your device was hacked or infected with a virus, then the risk of losing your entire cryptocurrency increases dramatically.

Online wallet

Online wallets are wallets that can be accessed from any computer, provided that you know your personal login.
Despite the fact that these wallets are the most convenient for access, they are very easy to crack, since your private keys are stored by the provider.

Paper wallet

Since a paper wallet involves “cold” storage of cryptocurrencies, it is also considered to be an equally safe, but affordable alternative to hardware wallets.
Although in some scenarios such wallets offer enhanced security, it is difficult for many users to handle them.
If such a wallet is printed incorrectly or is stored in an inappropriate place, then it automatically becomes vulnerable to a hacker attack.
Since the paper wallet is completely unencrypted, malware on your computer can read your keys when you try to access your assets.
To protect yourself, you must “empty” your wallet and create a new key every time you decide to access your digital coins.

Conclusion

Although the modern market provides a wide variety of wallets for virtual currency, serious crypto investors respond well only to hardware wallets.
The fact is that if you invest more than you earn per week, then you better choose a hardware wallet for storing cryptocurrencies.
These wallets provide an extra layer of protection against cyber attacks, fraudulent sites, and malware.
Although the cost of such wallets is more than a hundred dollars for a small device, they will reliably protect thousands of your hard-earned money and will never compromise the security of your electronic assets.

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