First, let’s understand the difference between the basic mechanism of crypto and fiat currencies.
For fiat currencies, the credentials that are linked to your bank account are in the form of ID, passport, etc., and they are the most important. In the case where you lose your debit/credit card or somehow your wallet has been compromised, the way to protect yourself is to go to your bank and confirm your identity. Most probably there are also other security measures in play.
By doing so you can block the card from being used. With that said, we know that without your identification credentials (which should always be secured), no modification can be made to that account.
With cryptocurrencies, on the other hand, your identity is not important at all. Or at least not your personal identity. For a crypto wallet, there is a private key that ‘acts’ as your wallet’s ‘identity’. This is the key component (pun intended) that a hacker will use the get access to your wallet and subsequently to your coins.
**Crypto-transactions are irreversible, so the security of your private key is paramount! Learn more here about securing your coins.
Now that you know how it works, let’s see why hardware wallets are the best choice for keeping your precious coins secure.
For those of you who don’t know, there are 2 types of wallets: software wallets and hardware wallets.
The software wallets are an online storage medium for your coins. To access them or receive coins that were sent to your wallet’s address, you need to be connected to the internet. We all know that the internet is the gateway for a hacker to get into your computer. Using a software wallet demands you to tread lightly
With hardware wallets, we are looking at a different beast. First of all, your coins are held in cold storage – offline. It is safe to say that there are no methods of accessing the device wirelessly. So right of the bat, you avoid losing a war by not starting one!
Secondly, you can backup and restore your wallet in case of emergency. Sure, this is also true for software wallets, but with hardware wallets the option to backup is practically ‘pushed’ on you from the get-go. The wallet backup is done by providing you with a list of words (12-16 words) in a specific order. Write them down and keep hem safe!
Third, and in my opinion most important, it is PIN protected. When you get your hardware wallet, its startup requires you to set a PIN code. It is 100% useless without the PIN code! There is no way for a hacker to just connect it to a PC and crack its encryption. If you lose it, simply restore your wallet to a new device by inputting the words in the same order, seeing as you backed it up in the beginning.
2. Ease of Use / Accessibility
Hardware wallets are very simple to use. Usually, they only have 2 buttons, except for the newer ones with touchscreen. The user interface is very intuitive, and it makes sending and receiving cryptocurrencies a walk in the park. All the hardware wallets on the market are portable. The Ledger Nano S, for example, can even be hung on a keychain.
Yes, I know, you can get a crypto-wallet on your mobile phone. It is portable, you take it with you everywhere anyway, but keep in mind that you are on the radar – connected to the grid.
These devices, although small, pack more encryption than some of the most secure servers out there!
3. Multi-coin Capabilites
With software wallets, you need to keep multiple wallet apps on your device, to store the different coins you might be holding. This means more private keys, more passwords and backup phrases to remember, more of a hassle is what I’m saying!
Hardware wallets give you the possibility to store a wide variety of coins inside the same vault. Some wallets, like KeepKey, even give you the option of exchanging coins directly on the device, which is a great feature to have!
Okay, I know what I did, but I cannot stress this enough!
There are not many ways to explain why ‘1+1=2’ (mathematically speaking).
Hardware wallets are literally immune to malware and nasty trojans!
Consider the following scenario as an analogy for the difference between software and hardware wallets.
Software wallets – Keeping your funds under your mattress or a safe in your house. It is up to you to keep them secure and fend off anybody who wants to steal it. You can get a very good security system, dogs, the works. If someone smart enough wants to steal your money, they will find a way.
Hardware wallets – Keeping you funds in the highest security vault of an impenetrable bank. The bank assures you that the funds are safe and in the case on an unlikely robbery, they also insure your account. So, at least you can get your money back, which is analogous to backing up and restoring your hardware wallet.
Well, this is my explanation of something obvious to those that fully understand all the aspects of the Crypto World. The article is designed for those of you who are still new to the community, to help you understand the risks of the industry and how to avoid them.
Check out this free course about Securing your Bitcoins and Altcoins. It will help you keep your wallet’s security up to par.
Be sure to check out our Hardware Wallet Reviews!
Share the information if you deem it useful, don’t keep it to yourself! 🙂
You can also leave a comment below if you have any questions! I will answer them and most probably will make an article on the topic if it’s a more complex subject.