What is a “Hardware Wallet” and how does it protect your cryptocurrency?

How a Bitcoin Wallet works

Once you own Bitcoins (or any other cryptocurrecy) you then need to store them in a personal wallet where you control the private keys or wallet seed, storing coins on an exchange long term is not recommended because exchanges can potentially be hacked or taken down by authorities.

Bitcoin wallets are usually comprised of three elements:

Example of a recovery passphrase whilst setting up a Ledger Bitcoin wallet

The Wallet Seed/Recovery Phrase

Also known as a mnemonic passphrase, this is a backup phrase that is used to recover your Bitcoin wallet if it is ever lost.

You should always keep a backup of your wallet seed or recovery phrase on a piece of paper.

The Public Address

This is where you send Bitcoins to, it is a string of alpha-numeric characters that represents a possible destination for a bitcoin transfer.

The Private Key

In a cryptocurrency wallet, the private key is a secret number that lets a user spend Bitcoins. Every Bitcoin wallet contains one or more private keys, which are saved in the wallet file.

All Bitcoin addresses generated from a wallet are related to its private key, it is recommended to keep a backup of your private key if the wallet does not provide you with a wallet seed or recovery phrase, along with your recovery phrase you should not reveal your private key to anyone.

Hardware Wallets

A hardware wallet (or a physical Bitcoin wallet) is a special type of Bitcoin wallet which stores the user’s private keys in an offline environment using a secure and encrypted hardware device.

Hardware wallets have major advantages over software and paper wallets:

• Multiple cryptocurrencies can be stored on one wallet so managing multiple cryptocurrencies is easier.

• You can send Bitcoins from a hardware wallet an unlimited amount of timess, paper wallets can only be spent or sent from once for security reasons.

• Hardware wallets are immune to computer viruses or malware that attempt to discover a users private keys, this is due to their built-in encryption procedures that make the private keys unrecognisable to any unauthorised parties.

• Hardware wallets can be used to to receive and send cryptocurrencies at any time, as opposed to a paper wallet which must be imported to a software or hardware wallet if you want to transfer your Bitcoins out of it.

My recommendations:

Ledger Nano S

The Ledger Nano S is currently the most popular hardware wallet, along with the Ledger Blue it supports the largest amount of cryptocurrencies and is routinely adding new coins.

Check it out here: Ledger Nano S

Ledger Blue

The Ledger Blue is Ledgers latest physical wallet that also supports hundreds of cryptocurrencies and it includes a large, color touchscreen.

Your wallets private keys are stored securely offline using BIP 16, BIP 32, BIP 39 and BIP 44 encryption.

Check it out here: Ledger Blue

I hope you found this post helpful, feel free to check out these useful resources below:

You can buy Bitcoin, Ethereum, Ripple, Bitcoin Cash, Bitcoin Gold and Stellar Lumens from anywhere in the world using CEX

You can buy Bitcoin, Ethereum, Cardano, Qtum or Litecoin from anywhere in the world using Coinmama

You can also keep up with me on Twitter.