​​An Overview of Hardware Wallets

A hardware wallet is a type of Bitcoin wallet that uses a secure hardware device to store a user’s private key. They are physical devices that contain encryption and are solely used to store your wallet. There are a few reasons why they are preferred over standard software wallets:

They are immune to computer viruses, as opposed to software wallets that are susceptible to malware attacks. The private keys of the user are stored on hardware such as a USB drive and cannot be transferred out of the device.

The best way to protect your coins is to store them offline, which means keeping your access keys to your coins somewhere that is not accessible to the internet. You can also refer to this as cold storage.

Hardware wallets serve as your private keys

In accordance with the blockchain rules, Bitcoin stored on an exchange cannot be owned. The reason for this is that you don’t have the private key for your exchange account. This is similar to the use of online wallets to store Bitcoins. It is only possible to claim ownership of a Bitcoin if you possess the private key to the address where it is stored. Hardware wallets don’t just run a node on your PC, but also store your key on a dedicated chip. This ensures the security of transactions since private keys are never transmitted in plain text to the internet-enabled device.

To verify transactions in an isolated system, hardware wallets rely on their display panel.

Hardware wallets for managing multiple coins

It is possible to store multiple coins on hardware wallets. The Ledger Nano S, for example, receives updates and adds support for multiple coins, making it easier for users to access multiple cryptocurrency wallets simultaneously. Cryptocurrency investors rely heavily on this feature, especially those who spread their investments across multiple wallets. Supported cryptocurrencies include Bitcoin, Litecoin, Ripple, Bitcoin cash, Ark, and Ethereum. In addition to installing dedicated PC applications, users can use extensions within Google Chrome to interact with the various cryptocurrencies stored in the wallet.

The Risks of Security

As of today, no Bitcoins have been stolen from hardware wallets. In contrast to the numerous records of stolen Bitcoins from Internet-connected devices, they have at least maintained a good record.

Those targets are of high value but are based solely on assumptions related to security. There are still multiple ways for hardware wallets to fail you. You must consider these risks when choosing what type of hardware wallet to buy or how much trust to place in it. Here’s a list of the risks:

The shipping process has been compromised

A secure device could be substituted for an insecure one; government programs could modify hardware to insert backdoors;

Inadequate implementation

The quality of their implementation is critical to the security of all computing devices, including hardware. In the event of a bug, an attacker may be able to obtain unauthorized access to secrets. The proof of the security of a hardware wallet is very difficult to prove, even with a perfect design

The malware swaps recipient Bitcoin addresses.

A hardware wallet will not protect you from being deceived into sending Bitcoin to a false Bitcoin wallet address. In the case of high-value transactions, scammers could use malware on a PC to monitor the recipient’s Bitcoin address and then swap it for another account under their control.

When high amounts are involved, it is necessary to contact the recipient by phone to confirm their bitcoin address.

The production process has been compromised

Despite being a perfect hardware wallet, it could still have unintentional and intentional holes in it due to faulty production processes. The introduction of hardware backdoors is causing real concern among military and financial applications.

The insecurity of the random number generator (RNG)

In hardware wallets, RNG security is typically built into the hardware, and it is responsible for secure generation of your wallet’s private keys. It is possible that the RNG is insecure because of an unintentional error or a malicious weakening. An attacker may hack wallet keys generated by an insecure RNG by generating pseudo-randomness that is similar to true randomness.