Your wallet will carry cards, money, and random pieces of paper. Since paper money was introduced in the 1600s, wallets have been leaving lines in our dad’s jeans. However, as credit cards and IDs are now integrated into our smartphones, we might not need the wallets anymore.
Nevertheless, a new kind of wallet is now more important than ever. In the era of cryptocurrency, the need for a crypto wallet is essential.
What is a crypto wallet?
Did you know that private keys are used to approve transactions with cryptocurrencies, and keeping them safe is crucial? A crypto wallet stores these private keys. Technically, the crypto coins are not inside your crypto wallet but in the blockchain. The private keys you keep safe inside the crypto wallet allow the blockchain to transfer the coins to another person’s ownership. The main job of the crypto wallet is to hold the keys needed for interacting with the blockchain.
The main problem here is that private keys are important, and if you lose them, you can’t access the coins, and no one can help you get the private keys back at any cost. While this can be catastrophic, you need to keep the keys safe inside the wallet, and for this, you need to understand how crypto wallets work.
Here are a few things to keep in mind how crypto wallets work:
Private Key: It is a unique number that allows one to transfer coins to someone else by generating a public key. However, while this unique number allows you to sign transactions, it’s not a password for the wallet account. Additionally, you need to bear in mind that you cannot reset or change the private key. The most important thing to note is that you should not share your private key with any person. If your private key is with anyone, then they can easily send your crypto (make irreversible transactions) on your behalf. Therefore, keeping these keys safe inside a secure crypto wallet is necessary.
Public Key: It is also known as the public address. The public key allows one to receive crypto, and it’s quite similar to an email address or a bank account number. You need to give out the public keys (the address) from where you wish to receive coins.
Together, the public and private keys work like a locked mailbox:
- You must give the public key (address) so the concerned people can drop the coins in the mailbox.
- You also need to keep the private keys as that’s the one and only way to get access to the coins that are in the mailbox.
Cold wallets: When you intend to secure your private and public keys, the need for a cold wallet cannot be ignored. Cold wallets are ideal as they are not connected to the internet, and the private keys can be stored in hardware wallets or on a piece of paper.
Hot wallet: This is the second best option, as hot wallets are less secure than cold wallets. Hot wallets are connected to the internet, and although safe, they have vulnerabilities. Trustwallet and Metamask are some of the examples of a hot wallet.
Hardware wallet – Let’s get to know more about it!
Hardware wallets are pocket-sized electronic devices that usually have Bluetooth or USB that connect to your computer. The hardware wallet has a few buttons and a small display. The wallet is 100% secure as it’s completely disconnected from the internet until one plugs in the device to connect it to the computer.
In order to make a transaction, you need to connect the hardware wallet to a computer or laptop and then enter the wallet PIN code. Once the transaction starts on the laptop, a request is sent to the hardware wallet. After this, the transaction shown on the hardware wallet’s display requires your verification. So, just tap on the screen or press the button, and the transaction is completed. Since your crypto hardware wallet holds all the keys, the system knows that the right person handles and approves the transaction.
The hardware wallet is a standalone device rather than a phone, and it’s like a 2-factor authentication. Using a hardware wallet is better than your phone as the mobile can get hacked, SIM-swapped, and hackers can easily verify transactions to steal crypto.
What kind of crypto wallet is ideal?
While hot wallets are very convenient to use, if you have made big assets in cryptocurrency and want to grow your investment, then hardware wallets might be worth it. Hot wallets are more prone to get hacked as they are connected to the internet. There have been plenty of instances in the past when blockchains got hacked and lost 6-digits worth of crypto. One such example is Jason Hitchcock, who lost $500,000 of RUNE, over $100,000 of ARCX, and a few ETHs in February 2021 from the hackers. He had no idea how this happened. However, Jason highly recommends using hardware wallets for anyone who holds crypto worth $10,000 or higher. Listen to his podcast to know better what actually happened.
Even Joe Hertler had his ETH hacked after the crypto boom in 2017 through a sim-swap attack. He, too, recommends using a hardware wallet. Listen to his podcast here!
Are hardware wallets safe?
The best thing about hardware wallets is that they are 100% safe even when connected to compromised laptops or computers. This is because your private keys do not leave the wallet. When using the hardware wallets for the first time, one is asked to record a 12-key or 24-key seed phrase. You can write this down on paper or, even better, get it etched in a metal for longevity. Hide it somewhere so that it’s safe and you won’t forget. If you have a physical recovery like this, it protects the wallet from sim-swap attacks that’s generally done by using stolen devices and fake URLs.
Compatibility
Did you know all hardware wallets do not support all blockchains? You should research and ensure that your hardware wallet supports the L1. For this, get connected with us to learn more about hardware wallets.
Final words
Blockchains can be hacked. However, you are unhackable. Your crypto is safe and secure with a hardware wallet. If you have meaningful crypto assets, holding them with a hardware wallet would be wise. Connect with us to protect your crypto from theft.
