To understand how hardware wallets work, it is best to start with what a hardware wallet is.
What is a Hardware Wallet?
A hardware wallet is a different form of a Bitcoin wallet, it stores a user’s private keys within a secure hardware device that the user can carry on their person. This physical wallet’s sole use is to store your encrypted wallet file. There are other Bitcoin wallets in use that each has its pros and cons. Some of these other wallets are, software wallets, mobile wallets, browser-based wallets, paper wallets, and even a USB can be a form of a simple hardware wallet. However; those methods have basic theft drawbacks, such as software wallets are common targets for malware, and private keys on standard USBs can be stolen via plain text.
Are Hardware Wallets Secure?
Hardware wallets are more secure since they allow the user to make their transactions online while storing occurs offline. They work with a wide variety of currencies and can often be integrated with computer software or web interfaces. Using the above methods the user can easily make various transactions, first, the user inserts their custom PIN, using software or web interfaces initiates the transaction and then the user confirms the transfer of cryptocurrency. Thus, hardware wallets allow the user to easily transfer and store the currency offline in what is commonly referred to as “cold storage”.
Wallets are used to “own” the Bitcoin, as otherwise the keys that are in an exchange are not personally “owned” by the user but rather by the exchange. Bitcoin stored in exchanges is vulnerable to hacks and attacks upon the exchanges. To protect and “own” your Bitcoin you will need to claim ownership by possessing the private key to the address where it is stored.
How does a Hardware Wallet Work?
Hardware wallets allow you to store your key on a dedicated chip rather than a simple USB or on one’s PC. This allows you to securely transfer private keys, as they are never sent as plain text where it could be susceptible to theft. The only time a hardware wallet is susceptible to theft is if the thieves have physical access to your hardware wallet. Even with physical access to your hardware wallet the thief would either require your PIN or hack the encryption.
Thus whether you’ve been dealing with cryptocurrency for a long time or are just starting out. Properly securing your Bitcoin or Altcoins is an important step to protecting your investment. Hardware wallets are and should be a standard given their ability to securely store your private keys giving you “ownership” and sole access to your Bitcoin. When selecting your hardware wallet it’s important to know the differences between them and their individual pros and cons.
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