The world of crypto can feel a bit like the Wild West at times. Still in its infancy, often misunderstood and underregulated, bad actors are lurking in the shadows looking to make a quick buck. It’s easy to be lulled into a false sense of security due to the familiarity of the technology we are working with. However, just as no one would leave cash or jewelry unguarded, the same level of caution with virtual assets should be exercised.
Those, who are just getting started with cryptocurrency, may well be inclined to stick to a crypto exchange when purchasing coins. These feel familiar, and most people are well accustomed to having money online, as bank accounts and credit cards are managed online for more than a decade. However, crypto exchanges aren’t guaranteed in the same way banks are, and an exchange being hacked could lead to coins being lost forever.
To maintain full control of funds, just as is the case with physical cash, a hardware wallet is a way to go. At first, it may seem like a big step, yet the concept is merely an old solution to a new problem.
Private Keys: The Essentials
A private key is essentially an access pass to a cryptocurrency’s ecosystem. Anyone who has access to this key, to all intents and purposes, access to your funds. Losing the key is like losing cash; there’s no rewind button to turn back the clock. Private keys need to be kept private. And that’s where a hardware wallet comes in.
The keys themselves are made up of an alphanumeric string of characters. You could print them out and store them in a safe, but then transferring or spending them would become overly burdensome. To be practical, they need to be stored on a secure device.
Hardware Wallet: a High Level of Security?
It’s a device developed specifically for the storage of crypto. Unlike smartphones and computers, it’s not connected to the internet, and therefore it provides a heightened level of security. A decent hardware wallet will store private keys securely and ensure they never leave the device. It’s a standalone device and must be connected to a PC or other online device to access the private keys.
A hardware wallet is something like a bank vault- it is impenetrable to hackers due to the fact that it is not online. Even if someone physically gets their hands on your wallet, they still won’t be able to spend your money unless they also have access to your PIN code.
Still, some limitations should be considered when using a hardware wallet. Firstly, we are used to doing things online. We can make purchases online, pay for everything online, even work online. Cold storage isn’t available online.
Another pitfall is that hardware wallets make a user take the whole responsibility for funds. On the one hand, it’s positive as no third party will have access to the funds. On the other hand, if something goes wrong, no one can help.
All in All, How Do They Weigh Up?
Just as with a key to a safe deposit box, the physical threat could compel a user to compromise themselves, and criminals are constantly trying to find ways to hack into the software that connects to them when they are plugged into a PC, however, to date, criminals have had no success doing this.