Best Hardware Wallets For Cryptocurrency
DAVID BARTON, Lead Technical Writer
January 13, 2018
When using cryptocurrency, you need to use a “wallet” as a piece of client-side software that allows you to send and receive transactions from others. Whilst this is necessary for the various “crypto” coins and tokens you see online, there is actually a better way to store your tokens safely, which is through a hardware wallet.
Hardware wallets are small systems which allow you to “store” your cryptocurrency “files” inside a USB-powered device, which has a small amount of software designed to save the files on its flash memory.
Imagine a “flash memory” (USB) drive with a small LCD screen and the ability to “save” small pieces of data onto the drive. The data in question are the cryptocurrencies everybody is “trading” when they buy and sell the various crypto systems online.
Ultimately, what’s known as “cold storage” is basically the saving of a file. All the crap circulating about “cold storage” and the other jargon is mainly there to get you to think it’s somehow new & novel. It’s not. All it does is store the “crypto” files on a pen drive and allows you to load them as required.
If you’re looking to get into the “crypto” world, it might be beneficial to manage your portfolio of “coins” through the various “hardware” wallets available either to buy or build yourself. This tutorial is going to explain how to do it.
There are a variety of wallets available to store your cryptocurrency safely.
How Hardware Cryptocurrency Wallets Work
To understand the process befitting of a “hardware wallet”, you first need to appreciate the overall “crypto” landscape, and how it works from a technical perspective.
The underpin of it all is something called blockchain, which is a technology which helps create a decentralized database for digital devices. In a nutshell, they basically allow “decentralized applications” to store and access data through 100’s or 1000’s of systems, rather than through centralized systems as is the case today.
Whilst “blockchain” is not the only reason for “crypto” systems (Ripple was created in 2004 – 5 years before Bitcoin, and 4 before Blockchain), the idea that you could store data across 100’s of systems (and have it accessible) has never been possible before.
In order to protect these decentralized database systems, the creators of “Bitcoin” and other cryptocurrencies had to create cryptographic algorithms which basically encrypted particular parts of various “blockchain” database systems, allowing only people with particular decryption tokens to access the data contained within.
The “tokens” you see (which are simply files that have a public/private key for protection) are the vaunted “coins” in Bitcoin. In other words, what you’re storing for the ENTIRE “crypto” space are files which have been encrypted by the particular system that they’re meant to represent.
These files hold absolutely no value on their own – the idea that by somehow “owning” one, you’re able to retain some semblance of value is inherently incorrect, and is why most are considering “Bitcoin” as a bubble. Nonetheless, the “files” do allow you to utilize the BTC payment network, and thus being able to store them effectively & securely is paramount.
This is where “wallets” come in. In the “crypto” world, a “wallet” is simply a piece of software which allows you to save the various “crypto” token files on your system whilst maintaining the private/public key for that file. Although you can get custom “hardware” wallets, it’s still intrinsically powered by software.
Why “Hardware” Wallets?
Whilst you *could* put the files onto USB drives, or just saved onto your hard drive on your PC, the simple reality is that if someone is able to download them and guess the public or private key, they will be able to “steal” your tokens.
There are 3 types of “wallets” for “crypto” tokens.
This is just an “app” you may store on your phone, or desktop system. It saves your crypto “tokens” and provides functionality through which you’re able to utilize those “tokens” with real-world services, including the likes of “sending” them to other people, buying products or even paying bills.
Whilst these systems work very well, it’s generally recommended that you don’t leave your “tokens” in there indefinitely, as this will basically leave them open to hacking etc. The better thing to do is put them into “cold storage” (AKA onto an OFFLINE storage device – hardware wallet or USB drive).
Since crypto “tokens” are simply files, you can just put them onto a USB drive. It’s not the most effective solution, but works and is relatively inexpensive.
Whilst this works well, it’s in no way as secure as the “hardware” wallet designed specifically for the purpose. You’re basically able to store the files / public & private keys independently on the drive (rather than having to put the files onto CD or the equivalent).
If you’re prepared to do this, you’d be far better extending the setup to a full hardware wallet (as this is infinitely more secure and not much expense).
These started to appear in 2011/2013 and basically work by giving you a secure way to store “crypto” tokens on the chip itself. They work by providing a single environment through which the crypto “tokens” are able to be stored without the files leaving the system itself.
The most important thing to realize about the “hardware” wallet is that it’s designed specifically for the various “crypto” tokens, meaning that a large number of different security features have been incorporated into the systems to make them 100% secure. They are widely considered the best solution for storing and managing “crypto” tokens.
Which Wallets Are Best?
Undoubtedly “hardware” wallets, of which there are a number of effective solutions.
The most popular “hardware” wallet is one called “Ledger Nano S”, which is available through all major retailers such as Amazon.
The way in which these work is to “connect” to your computer system via a USB cable/connector, which then allows you to upload any “crypto” token you may have from the system.
After doing this, you’re able to store the “crypto” tokens (all systems supported) on the device, removing any potential security flaw in the system. You’re able to secure it by using a “private” and “public” key – which means that any time you are looking to get the system working as effectively as possible, this “wallet” is able to keep your tokens stored effectively.
The most important thing to remember about the Ledger Nano is that it’s meant as a “cold storage” solution for your various “crypto” files. This basically means that if you’re looking to continually trade the tokens, you’ll have to keep them in a “live” / “software” wallet, which you’re able to connect to your preferred “digital currency” exchange.