What are hardware wallets?
Hardware wallets securely keep a crypto user’s private keys in offline or “cold” storage, meaning they are not connected to the internet, except when a user must briefly connect them to a computer to complete a transaction (more on that later.) Software- or web-based crypto wallets are “hot”, or permanently online, which gives hackers more potential attack vectors through which to steal your funds. Because of this, hardware wallets are nearly universally considered to be a very safe option for keeping crypto assets out of the wrong hands.
Newer or more casual crypto users might not want to bother thinking about things like private keys or custody, so many cryptocurrency exchanges handle wallet services on behalf of account holders. However this means you’re trusting your private keys to a third party. Hardware wallets, on the other hand, allow users to take the security of their private keys into their own hands with a physical piece of equipment. Most often resembling USB thumb drives, hardware wallets have a small variance of form factors and features, and their sole purpose is to sign cryptocurrency transactions offline and safeguard a user’s private keys.
How do hardware wallets work?
Hardware wallets can be thought of as highly stripped-down computers that exist only to perform a few basic but essential functions, often containing little more than one or two buttons and sometimes a small screen. On their own, hardware wallets have no way of connecting to the internet, which means it’s virtually impossible for hackers to access their contents. When a user is spending crypto, swapping, or otherwise sending and receiving assets to/from any wallet, the transaction must be “signed” using their private key. With a hardware wallet, transactions are signed within the device itself through what’s called a crypto bridge, a simple piece of software that facilitates a hardware wallet’s connection to the blockchain.
When a user connects their hardware wallet to a PC, the crypto bridge transfers unsigned transaction data to the device. The hardware wallet then signs the transactions via the private key and uploads them back to the bridge, which broadcasts them to the rest of the blockchain network as complete. At no point in this process does a user’s private key leave the hardware wallet.
Popular hardware wallets
Some of the most trusted and best-known hardware wallet manufacturers include:
