Home > What hardware wallets are and how they work

What hardware wallets are and how they work

In this article I’ll explain what are the Hardware Wallets, let’s start by saying that there are three types of wallet (wallet), software type to install on pc or as apps for mobile and browser also called “hot wallet”, then there are paper wallet type, simple sheets on which your public and private keys are printed, and hardware wallets, offline electronic devices protected by advanced encryption, guaranteed by components and security standards usually CC EAL, the latter two types are also called “cold wallet” and are the most secure.

Keeping cryptocurrencies on an exchange without holding a private key doesn’t mean having a wallet, and it’s the easiest way to risk being robbed.

Each type of wallet offers pros and cons, software wallets offer flexibility but their security is precarious as they are vulnerable to cyber attacks, and it is easy to install malicious software by mistake, Always remember that the crypto world is full of scammers, much better paper wallets that being offline offer greater security, but are more uncomfortable to use, and involve greater management.

On the contrary, Hardware wallets offer security as private keys never leave the device and are kept offline and also offer flexibility because they can contain several cryptocurrencies and interfaced with third-party apps and DEX, can extend their functions, always ensuring maximum security as their transaction validation function is always offline and always needs our physical intervention. For example, clicking mechanical keys on the device and inserting a pin to confirm or in the most advanced hardware wallets giving us the possibility to check the sending address of our cryptocurrencies directly on the display of the device.

In addition, the Hardware Wallets offer the possibility to recover their cryptocurrencies usually through a mnemonic phrase the recovery seed generated according to BIP39 , that is, a phrase formed by English words of made sense.

Example of SEED phrase

 witch collapse practice feed shame open despair creek road again ice least

By typing your Recovery SEED, that is 12 or 24 words in a new Hardware wallet, when the first one breaks, or is lost, you can restore your wallet as you do with a simple backup.

Getting Started with Hardware Wallet

Hardware wallets are simple to use and at the same time safe devices, but what are the first steps to understand their operation and avoid fraud.

  • A good rule is to buy directly from official sources, and from manufacturers’ stores, avoid buying used devices or from ad sites such as eBay (see man-in-the-middle attack page).
  • Check the packaging of the device you receive, check that the film that covers the box is intact, usually manufacturers seal the package with burglary stickers, check that they are intact, some devices like those of the manufacturer Ledger, each boot verifies that the firmware is genuine, these controls are used to prevent the device from being tampered with in the route of shipment between the manufacturer and you.
  • Read and follow the basic instructions carefully, usually each hardware wallet comes with a quick start guide to activate it quickly.
  • After installing the software on the PC and connecting the wallet , the first thing to do is to create the “Recovery SEED” backup sequence to recover the wallet, useful if the device is lost or damaged. Usually it’s 12 or 24 words to write on a sheet of paper (which comes with the hardware wallet, it’s special acid-free paper to avoid decay). This sheet should be stored in a safe place, away from the hardware wallet, do not photograph it and do not copy the words on PC, smartphone or cloud server, just because it is offline the security is greater and depends on your care in storing it.
  • Finally set a PIN number or if you are familiar a Passphrase (password phrase) to protect unwanted access to the device.

Security cannot be 100% guaranteed, remember that if you are the only one holding your private key you are the only one owning your cryptocurrencies.

Technical features

The word Wallet is misleading because in reality cryptocurrencies are not contained in the wallet, but always remain on the Blockchain, the main function of the hardware wallet is to validate a transaction, this validation is transmitted unidirectionally via USB, Bluetooth, NFC, or other QR code systems as is the case with the Ellipal wallet , this means that your private key never leaves the device digitally (Only when we write the recovery phrase “Recovery SEED”, the key is transcribed legibly out of the device) and absurdly your hardware wallet could be connected even to an infected PC without having security issues.

Security and Backup

For Hardware wallet there are various security systems, in addition to firmware protections related to opensource operating systems as for Trezor or proprietary software like Ledger’s Bolos, or hardware protections related to electronic components.

At the first activation you will need to set PIN, Recovery SEED and Passphrase.

We try to clarify the latter terms, as mentioned in the previous paragraph the PIN is required when initializing the wallet, it is usually up to 8 or 10 digits long code depending on the models, which is required to avoid unwanted access to your wallet, does not protect your currencies, but protects your device, if it is wrong three times in a row the wallet content is completely deleted (this applies to Ledger) and you’ll have to restore it with recovery seed.

By Recovery SEED, you mean your private key that as written above must be transcribed offline, are usually 12 or 24 English words and are necessary to recover your hardware wallet, is the most important thing and if it is lost, you can say goodbye to your cryptocurrencies.

Another advanced security system is the Passphrase, which is an advanced feature usually offered by the best wallets. It’s an additional password/phrase that, added to the recovery seed, protects you in case the recovery seed is obtained by someone. Activating the passphrase generates a new empty wallet/account and to see your currencies in this new wallet you will need to transfer them to its address. Using multiple passphrase you can generate hidden wallets, the first containing a few cryptocurrencies and another hidden, containing your real wallet. (nb: these functions are only for experienced users, if you forget the passphrase your cryptocurrencies are irretrievable because even having the recovery seed, without the passphase you would only generate a wallet at a first level

Specifications of the various models

In this site you will find the features that differentiate the various manufacturers and to pay attention before your purchase, for example the connection modes (USB, Bluetooth, NFC) the interaction modes (touchscreen, physical buttons, QR code) and of course a presentation by the various manufacturers, to start with a read on the article on the best hardware wallets of 2020.

Pros and Cons of Hardware Wallets:

♦ Unlike other wallet transactions are validated in the device and the private key never leaves it.

♦ Many functions are integrated into a single device, such as the use of decentralized exchange (DEX).

♦ Each device can contain many constantly expanding cryptocurrencies.

◊ To make a transaction you must necessarily use the hardware wallet and sometimes it can be uncomfortable.

Coin Supported

On the page “Coin Supported” you can find the list of all cryptocurrencies supported by each model of Hardware wallet, the list is constantly updated as support for new coins usually happens very frequently.