Why Should You Buy Hardware Wallet If You Have Invested Into Cryptocurrency?
Why Software or Exchange Wallets Aren’t Safe?
“South Korean bitcoin exchange Bithumb hacked, money stolen“ – Business Insider
“Major bitcoin exchanges hit by cyber attacks as record rally makes them a target” – CNBC
“Largest Cryptocurrency Exchange Hacked! Over $1 Million Worth Bitcoin and Ether Stolen“ – The Hacker News
“Hackers steal $65 million in Bitcoins in huge exchange heist” – Business Insider
“Bitcoin exchange Mt. Gox shuts down amid $300 million hack“ – DailyDot
“Bitcoin exchange BitFinex hacked, $60 million stolen” – Business Insider
All the above incidences along with many more have happened with the people who were storing their Bitcoins and other Altcoins either in Software (Desktop) Wallets or Exchange’s Wallets.
Exchange based wallets store your private keys online on a computer which are always connected to the Internet. Desktop-based wallets can be infected with viruses or malware. Both are very much vulnerable to be stolen by a hacker.
One advantage of web-based wallets is that you can access them from anywhere, regardless of which device you are using. However, they also have one major disadvantage: unless implemented correctly, they can put the organization running the website in charge of your private keys – essentially taking your bitcoins out of your control. That’s a scary thought, especially if you begin to accrue lots of bitcoins.
On the other hand, hardware wallets promise enhanced security against software wallets in the case of theft or scams. These are physical wallets which hold your ‘private keys’ in cold storage. This basically means that your keys will never be exposed to the internet, protected from hackers/malicious software. Moreover, your coins are safe even if your computer is hacked or someone stole your Hardware wallet. If you lose your hardware wallet, you can always restore all your coins on a new wallet by using recovery phrase which you had set while configuring your hardware wallet.
Bitcoin hardware wallets are a tamper-proof electronic device designed to store private keys of your coins in an offline setting. The private keys and digital signatures needed to spend bitcoins are generated via these wallets. Your coins are always safe.
The way the hardware wallets achieve maximum security is by storing your private key and signing your Bitcoin transactions offline so someone trying to “hack” your wallet remotely won’t be able to do so. Most hardware wallets also use a second screen/device to verify actions on your wallet such as signing transaction. This way, if a hacker gains control over your computer, he still can’t do any harm since he requires access to the physical device connected to your computer as well.
As John McAfee said during his keynote speech at the Blockchain Money event in London: “One day, all of the Bitcoins on all of the software wallets, will vanish..” which he goes on to claim is due to spyware which is probably already running silently in the background of your device. If you’re new to crypto-currencies then you need to understand that you are your own bank and must perform all of the actions that would normally involve large teams and corporate compliance.
The main principle behind hardware wallets is to provide full isolation between the cryptographic secrets (private keys) and your easy to hack computer or smartphone. Vulnerabilities of modern PCs and smartphones are well known, and if you keep your private keys there (private key = your bitcoins) it’s just a matter of time before you’ll get hacked and lose everything.
Currently, there are three leaders in the hardware wallet market. Trezor, Ledger, and KeepKey. All three players have developed excellent hardware wallets. If you want more detailed information about them, you can check their pages here on my website.
To conclude, Hardware wallets are convenient, affordable, portable and backed up by a paper wallet allowing easy recovery in case of loss. If your crypto portfolio has even a single Bitcoin at a minimum, using a hardware wallet should be a no-brainer.