Do I really need a hardware wallet? How safe are they?

A hardware wallet is a physical device that stores the private keys to your crypto assets and allows you to sign transactions. Hardware wallets are often considered to be the most secure type of cryptocurrency wallet because they are offline and are not susceptible to cyber hacks. But how safe are they and are they the best choice for securing your crypto holdings? This blog post will explore the benefits and risks associated with using a hard wallet and help you determine if a hard wallet is right for you.

What is a hardware wallet?

As a specialized type of cryptocurrency wallet, hardware wallets store the user's private keys in a secure hardware device. Unlike software wallets that run on computers or smartphones and are vulnerable to malware and hacking attempts, hardware wallets offer an extra layer of security by ensuring that the private keys are never exposed to the online world.

Because it generates and stores your private keys offline, hard wallets help you avoid a lot of the cyber risks that crypto users face today. However, maintaining your hardware wallet and device and managing backups may be less convenient for many crypto enthusiasts. Recent technologies like multi-computational wallets (MPCs), Signature Threshold Schemes, and Social Recovery have combined for premium wallet security.

Typically, a hardware wallet resembles a USB stick and requires physical interaction to confirm transactions, providing an effective shield against remote hacking attempts. This makes them one of the safest options for individuals looking to store significant amounts of cryptocurrencies over extended periods.

How does a hardware wallet work?

Using a hardware wallet involves a series of straightforward steps to ensure the safe storage of your cryptocurrencies. 

• First, purchase a reputable wallet from a trusted manufacturer to avoid counterfeit devices. 
• Upon receiving it, set it up by initializing and choosing a strong PIN. 
• During the setup, the device will generate a recovery seed phrase, typically a series of 12 to 24 words; 
• Write down the seed phrase and store it securely, as it's the only way to recover your funds if the wallet is lost or damaged. 

Once set up, you connect the wallet to a compatible software interface on your computer or mobile device when you want to send or receive cryptocurrencies. Always ensure you are sending funds to the correct address and double-check transaction details on the hardware device's screen before confirming.

Hardware wallets and their security benefits

Unlike software wallets, which are vulnerable to malware, phishing attacks, and system breaches, a hardware wallet isolates your private keys from the internet, ensuring they remain uncompromised even if your computer gets infected. 

This physical barrier between digital assets and potential hackers grants many users peace of mind. Furthermore, hardware wallets typically require manual verification for transactions, adding another layer of security. Besides heightened security, hardware wallets have other benefits as well:

• Portability
• Support a wide range of cryptocurrencies
• Suitable for novice and experienced crypto users. 

What are the risks associated with using a hardware wallet?

While hardware wallets offer robust security for cryptocurrency holdings, they are not without risks. 

• Physical damage, loss, or theft of the device can result in inaccessible funds unless backups or recovery options have been pre-established. 
• Some users might fall victim to buying counterfeit hardware wallets or purchase hardware wallets that have been tampered with by malicious actors, leading to the potential loss of assets. 
• If a user forgets their PIN or loses the recovery seed phrase, they might be permanently locked out of their holdings. 
• If the hardware wallet’s associated software is used on a computer that is infected with malware, generally your crypto may remain secure but your data may become available to hackers. 

When using a hardware wallet, make sure to buy from reputable companies, check thoroughly for any signs of tampering, store it in a safe place, and use antivirus software on your associated devices. 

Hardware wallets are generally more secure against online threats, but they are not entirely foolproof. Users should always ensure they follow best practices and keep their devices' firmware and antivirus software updated, store the device in a safe place, and maintain backups for the pin and seed phrase. 

What happens if I lose my hardware wallet?

Losing your hardware wallet can be a daunting experience and is the primary risk of owning one. However, you can take a few steps to minimize the damage. 

• First, if you have a backup of your seed phrase, you can use this to restore your wallet and access your funds. If you don't have a backup, you can try to recover your wallet using a recovery service. These services typically require you to provide proof of ownership, such as a photo ID or recovery phrase. 
• You should also contact the company that made the wallet and report the loss. They may be able to deactivate the wallet so it can no longer be used, which will protect your coins from being stolen. Once you've recovered your coins, be sure to create a new backup to prevent this from happening again in the future.

The best way to mitigate the risks of hardware wallets

A hardware wallet is an important tool for your overall crypto security. By generating and storing your private keys offline, you avoid a lot of the cyber risks that crypto users face today.

However, maintaining your hardware wallet and device and managing backups may be less convenient for many crypto enthusiasts. Recent technologies like multi-computational wallets (MPCs), Signature Threshold Schemes, and Social Recovery have combined for a premium wallet for crypto security.

The latest technology in crypto wallets

Recent technologies like multi-computational wallets (MPCs), Signature Threshold Schemes, and Social Recovery have combined for a leading edge security for crypto assets. 

MPC wallets enable you to select your network of trusted Guardians (aka like the signers in a multisig wallet). Each Guardian has access to one a key shard. MPC wallets have one one major difference from multi-sig wallets:

The private keys with MPC wallets are generated virtually and split into distributed shares. So, while the private keys are generated online, they are in pieces that are never online in one place.

With this type of wallet, if your mobile device becomes damaged or compromised, you can initiate a Social Recovery process from a threshold (percentage) of Guardians. The same goes for transaction signing - a threshold of signatures (i.e. 3 of 5) is required to be online for automated transaction signing. 

While a hardware wallet is one of the mainstays of crypto security, it does create extra work for the digital asset holder. A mobile Social Recovery wallet like Gridlock provides the convenience of a hot wallet with the security of cold storage. Try it out today and see! 

Download Gridlock Wallet

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Written by Mason Winsed

Mason Winsed simplifies blockchain for the people. With a comp-sci background and a passion for crypto safety, he's your go-to for straight-forward crypto wisdom. In his off time, he's coding or gaming. Join Mason for a no-nonsense crypto talk.