Purchasing a Bitcoin hardware wallet allows you to keep your cryptocurrency investment as safe as possible, while still being able to access it.
A hardware wallet is a USB device which features a closed security system containing a user’s private keys.
The devices look like a large USB flash drive and consist of a microcontroller, panel, and storage in robust chassis.
In order to send or access funds on the wallet, users connect it to a PC and verify transactions on the wallet’s interface.
While this is not as convenient as using an online wallet, there are definite security advantages on offer.
Your private key
If your Bitcoin is stored on an exchange, you do not own it – according to the rules of the blockchain. This is because you do not have the private key for your exchange account.
The same applies for storing Bitcoin in most online wallets. The only way to truly own your Bitcoin is to hold the private key to the address it is stored in.
When you create a software wallet and run a node on your PC, you hold the private key and technically own your Bitcoin.
Hardware wallets go a step further by storing your key on a dedicated chip.
As private keys are never sent in plain text to the connected device, you can use hardware wallets to safely conduct transactions.
Verification happens on the hardware wallet itself, using the display panel and buttons to verify transactions in an isolated system.
This security means hardware wallets are essentially immune to viruses which attack software wallets, and most hardware wallet software is open source in the interests of transparency.
The security also means your private key will not be compromised, even if your PC is infected with malware.
Multiple coin management
Hardware wallets also allow users to store multiple coins on them.
Devices like the Ledger Nano S can receive firmware updates which add support for multiple coins, and users can switch between different cryptocurrency wallets on a single device.
The Ledger Nano S supports numerous cryptocurrencies, including Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Ark, and Ripple.
To interact with the cryptocurrencies stored on the wallet, users can install dedicated PC applications or use extensions within Google Chrome.
The ability to store multiple cryptocurrencies on the same device is an attractive option for cryptocurrency investors, especially if their investments are spread across multiple online wallets.
FIDO Universal 2FA
If you hold cryptocurrencies not supported by your chosen hardware wallet, or you prefer using an online wallet where you control your private key like MyEtherWallet, a hardware wallet can still be a useful tool.
Certain hardware wallets support the Universal 2nd Factor (U2F) two-factor authentication format. This lets you set up your hardware wallet as a physical key to access online wallets, in addition to holding compatible cryptocurrencies in cold storage.
The U2F key standard is certified by the FIDO alliance and can also be used to secure your Facebook, DropBox, GitHub, and Google accounts.