You’ve got some Bitcoin. It’s been living on an exchange for a while, but you’ve done your research and know it can’t stay there forever. To keep your prized asset safe, it needs to go offline.
But to where?
Paper storage, hot wallets, cold wallets, hardware wallets. The list goes on, but you’ve arrived at a hardware wallet.
Though, the confusion and overwhelm doesn’t end there. You’re now asking yourself which hardware wallet for Bitcoin is best for you.
Ultimately, you’ll have to make that call yourself. But we’re here to present the information you need to know for you to make the best choice.
To start our journey, we first need an understanding of what wallets are.
What Are Cryptocurrency Wallets?
The word wallet gives us a neat visual of what we think is happening with our Bitcoin. Though, to understand the reality, it’s unhelpful.
You’ve got an email address. People send you mail to this address. To access these messages, you login into your email client using your password.
Your password plays a key role in this process. In fact, you could say that it’s the key that unlocks your email. Only you have access to it.
Cryptocurrency wallets work in a similar way. People send Bitcoin to your public address just like they send a message to your email. For you to do anything with it, you’ll need your password, which is known as a private key.
A cryptocurrency wallet can be an app, website or device that stores and manages these private keys for you.
Hot or Cold? The Two Types of Cryptocurrency Wallets to Consider
When you purchased your Bitcoin, you probably did so on an exchange. If it’s still on there, then it’s living in a hot wallet. A hot wallet is one that is actively connected to the internet.
What’s the problem with this? Hot wallets are vulnerable to hacks.
Hot wallets can also be mobile wallets and desktop wallets. If you purchased a cheap computer and never connected it to the internet, then it wouldn’t be hot. It’d be a cold wallet.
A cold wallet is one that is not connected to the internet. They are considered to be far more secure, but they have their own pitfalls which we’ll discuss shortly.
Now there's a special form of cold wallet that's a tiny and cheap computer. It's called a hardware wallet.
What Is A Hardware Wallet And How Does It Work?
Hardware wallets are pretty dumb, which is a good thing. When a piece of software can only do a thing or two, it becomes much harder to hack.
Hardware wallets strip down their functionality to do just a couple of things: store your private keys and digitally sign transactions.
You’re familiar with private keys, but what about digitally signing transactions.
When a transaction comes to your device it is unsigned. The hardware wallet then receives the transaction and then sends it back to where it came from.
So your private key acts a little like a pen signing a cheque.
Why Are Hardware Wallets So Secure?
These actions are what make your assets so secure. The storage and the signing of your transactions take place inside the safehouse of your hardware wallet.
But because these tiny safehouses are so simple, they need some support to round out the process.
The middle guy is known as a bridging program. When the hardware wallet is connected to a computer, it communicates with it using this bridging program.
A wallet receives the transaction from the bridging program, signs it using your private key, then sends it back.
Just make sure that the transaction on the screen of the hardware wallet matches the transaction on the bridging program.
Do I Need A Hardware Wallet For Bitcoin?
If you answer yes to any of these statements, then it’s in your interest to get a hardware wallet for Bitcoin.
- You own a high-value amount of cryptocurrency.
- You are investing for the long game.
- You worry about the security of your cryptocurrency.
Why Hardware Wallets Are Must-Haves
- The private keys are stored in a protected area and cannot be transferred out of the device in plain text.
- Immune to viruses that steal from software wallets.
- Much of the time the programs that run hardware wallets are open-sourced.
Hardware Wallets Still Have These Security Threats To Consider
The likelihood is incredibly low of these occurring but you should be aware of them nonetheless.
Wallets use a random number generator (RNG) to generate private keys. You’ll want to check the claims of the manufacturer’s RNG. If it’s just pseudo-random number, then theoretically an advanced hacker could regenerate the key.
Why you are the biggest threat to your wallet’s security
Nothing is 100% secure and the same is true for hardware wallets. When it comes to hardware wallets, you, yes you, are probably the greatest threat to its security.
First up, a hardware wallet won’t protect you from sending Bitcoin to the wrong address. So you better make sure that you triple check that the addresses match before authorising the transaction.
You better make sure that you purchase directly from the manufacturer, too. Forget about those extra savings those third parties are offering. You want to minimise the risk of tampering.
Again, never purchase a hardware wallet that’s second hand. You have no sense of the honesty of this person and people have already fallen victim to theft through purchasing second hand devices.
Watch out for devices that look to have been tampered with during the production or shipping process. Most wallets come with a seal. If the seal is broken, better return it.
You’d also better be on the watch for scams. Hardware wallets will generate a 24-word seed phrase for you. If you notice a card in the box that already has this seed phrase then someone else knows it, too. This is bad since that someone else can access your private keys.
Some other low probability threats include the evil maid attack and the $5 wrench attack. The evil maid attack is where another steals your device and replaces it with their own. Their device transmits your PIN back to them once you attempt to access your funds.
The $5 wrench attack skips the fuss of switching the devices and threatens you with the ‘$5 wrench’ for your sensitive information. Most hardware wallets have a security feature to counter this.
You can set layers of access with different passphrases giving access to different keys. What this means is that you can make available very small amounts to the perpetrator while keeping the vault safely intact.
How to Choose a Hardware Wallet That’s Right For You
The decision to choose the right hardware wallet is based on your own needs and preferences. Consider the important features listed below when comparing various wallets.
The first and most important is security. Ask yourself what security features does it have. Does it have a screen so that you can verify addresses? Have you researched any issues with the wallet from existing users?
The ease of use is important, too. If you’re not particularly tech-savvy, then getting a wallet that is confusing to use runs the real risk of you making errors in the process. Strike the right balance between what you understand, what you are willing to learn and what you already know.
Do you want a wallet that supports multiple currencies? Most, if not all wallets, will support Bitcoin, but not all wallets support every cryptocurrency that’s out there. What does your cryptocurrency portfolio look like and which hardware wallet is going to best support this?
You better make sure that the hardware wallet you intend to run is compatible with the computer and its operating system you use.
While you’re all motivated and up to speed now, that may not be the case in a year or two. Read over the device’s restore and recovery options and make sure that you are clear on this process. Takes steps to ensure your future self can still access your wallet.
Price is a factor to consider, but it’s not as important. If you’re looking into a hardware wallet, you’re likely to hold a high-value amount of cryptocurrency relative to the price of the wallet. Is it worth trying to save that extra $50-100 in the long run if security is compromised?
Triangulate your sources. You’re probably doing this anyway, but make sure that you are looking at different reviews from different sources. Jump on forums and review websites. This will bump up your confidence rating of a device.
What Is The Best Bitcoin Hardware Wallet?
The decision on which is the best is always going to be subjective. Applying the considerations in the previous section will go a long way in helping you make your choice. Below we’ll go through some of the main hardware wallets available at the time of writing this post.
Note that each wallet has PIN security and a 24-word recovery seed, which you will use to recover your keys should the device be lost, stolen or bricked.
Ledger and Trezor Hardware Wallet
The two most well-known companies in the hardware wallet market are Trezor and Ledger.
The key difference between the two is that the Trezor is completely open-sourced while Ledger is closed. Open-sourced code is important for transparency as everyone in the world can see how the firmware is developed.
When you have code that is closed-sourced, then you are trusting the developer that there are no ‘back-doors’ into the code.
Both companies have wonderful track records since their inception, but know that they are not bulletproof. Each have had run-ins with hackers and fraudsters, too.
When researching, make sure that you use the company’s name and the word ‘hacks’ as a search term to read up on past events and potential threats.
The next hardware wallet to consider is the KeepKey. KeepKey was acquired by Shapeshift.io. The device incorporates an in-wallet exchange. This allows you to trade one asset for another without using an external exchange. Convenient.
The device is physically larger than its Trezor and Ledger counterparts, but at around USD $49 the price offers great value.
The KeepKey supports over 40 coins natively and gives you access to all ERC-20 tokens with the MyEtherWallet integration.
The BitBox02 is developed by Swiss company Shift Cryptosecurity. They offer two versions: the multi-edition and the bitcoin-only edition. The firmware for the BitBox02 is open-sourced.
Shift has a bug bounty program that encourages independent review of the firmware. You can find more security features listed on its website.
The BitBox02 device uses non-traditional buttons to navigate its functions. These are touch, swipe and hold gestures. Users have reported that getting used to this is relatively quick, but it can be a little annoying to use the device with these gestures.
BitBox02 includes all the accessories that you will need to connect your device to your computer, which reduces your dependency on third parties.
The Coldcard hardware wallet is developed by Canadian company Coinkite. Their main differentiator is that you get the best of both worlds in terms of chip security and open-source firmware.
Your seed words are stored in a specialized chip, designed to securely store secrets. All code is open-source, and you can compile it yourself. Coldcard even has a guide on their website where you can build your own device.
The Coldcard is perhaps for power users and only stores Bitcoin. It is the only device that is completely ‘air-gapped’. That means that the device never needs to be connected to a computer to send and receive Bitcoin.
Users of the Coldcard report that the OLED screen is on the small side and could provide some difficulties for people with impaired vision.
What Happens If The Wallet Manufacturer Goes Out Of Business?
No sweat unless you’ve misplaced your recovery 24-word seed phrase. The seed phrase technology is based on BIP39. This BIP describes the implementation of a mnemonic code or mnemonic sentence — a group of easy to remember words — for the generation of deterministic wallets.
This technology isn’t specific to any company, so if they go out of business, you can recover your keys using another company’s wallet. Just make sure you have that seed phrase handy.
Where to from here?
The overwhelm one has when presented with an abundance of choice is real. In this post, we’ve reduced that choice down to 6 (even though there are more wallets out there).
From these 6 wallets, you’ll need to make the call on which is the best hardware wallet for Bitcoin. If you want multi-coin support and you’re just getting started, then a Trezor or Ledger is going to be sufficient.
If you want tighter security, then maybe it’s the Coldcard. Do you want the ease of an in-built exchange? Look at KeepKey.
Whichever way you decide to go, keep in mind the considerations mentioned in this post to help inform yourself. Information and knowledge will be the best form of security.
Lastly, if you need some Bitcoin to store on your new wallet, then you can buy some from Hardblock.