Hardware wallets like Trezor and Ledger have become a popular option for crypto asset owners because of their security and convenience.
Last week, Twitter CEO Jack Dorsey announced that his payment company Square would soon be building a hardware wallet to store Bitcoin. The wallet will be a kind of plug-in device, similar to a USB stick, which stores, manages and secures a user’s crypto assets.
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Each digital asset is associated with a cryptographic password called a “private key” so that users can access it. This key protects cryptocurrencies from theft and unauthorized access.
The asset owner can use a secure hardware wallet to access the private key from anywhere in order to buy and sell crypto assets. Most hardware wallets allow users to manage multiple accounts; some even allow users to connect to their Google or Facebook accounts. Popular hardware wallets are Trezor, Ledger, KeepKey and Prokey.
How does it differ from a software wallet?
Cryptocurrency keys can be stored in two types of wallets – software and hardware.
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Software wallets are like smartphone apps that digitally store private keys. Most software wallets do not charge users for storing private keys, but they can collect commissions for trading through the app. These wallets can be vulnerable to malware.
Hardware wallets and physical devices act as cold storage for confidential keys. The passwords are protected by a PIN, which makes it difficult for hackers to extract private keys because the information is not accessible on the Internet.
The advantages of a hardware wallet
Hardware wallets are considered convenient as they can be connected to trading exchanges to complete transactions.
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Hardware wallets are often stored in a protected microcontroller and cannot be transferred out of the device, which makes them secure. Isolating them from the internet also reduces the risk of assets being compromised. In addition, it doesn’t rely on a third-party app.
Since the wallet is in physical form, the device could be stolen or destroyed. A 2016 University of Michigan study also identified prominent hardware backdoors that could be used by malicious actors to steal sensitive data.
The device can also be expensive compared to software wallets. Some hardware wallets can also have complex functions, making them difficult for beginners to understand.