I recently purchased a hardware wallet to store most of my cryptocurrencies. Before I decided to store my coins in a hardware wallet, I researched the reason to and not to buy a hardware wallet. I want to share those reasons with you and how I came to my conclusion.
What is a hardware wallet?
A hardware wallet is a device that stores the private keys of your cryptocurrency accounts on a hardware device. This device lets you sign transactions on your computer or phone, without ever exposing your private keys to the computer or the internet. In contrary to a wallet programme, these stores the keys (often encrypted by password) on your device itself. With a keylogger or a virus, those could get exposed, this would result in your funds getting lost.
The hardware wallet is used to give your cryptocurrencies the highest form of safety possible, you become your own bank in a sense. People with large sums of coins need these securities to keep their assets safe, storing in a software wallet or on an exchange bears too much of a risk.
Why not on an exchange?
Why not just store your currency on the exchange where you bought it? The biggest risk is that the cryptos you bought are not in your possession, the company holds those coins for you. This means if the company has bad security and gets hacked, your precious Bitcoin may be gone. One of the biggest hacks know is the Mt Gox hack. This does not mean Bitcoin got hacked, but the keys from the company were hacked.
When you withdraw your coins to your own (hardware) wallet, those coins are in your own possession.
Why not on a software / mobile wallet?
As discussed earlier, the software wallet stores your private keys on the device itself, almost always encrypted with a password. This means if someone has access to your computer they can steal your keys and see your password. This way your wallet is as secure as the computer itself.
Why NOT a hardware wallet?
You are missing out on profit. Earning interest on your coins through staking and lending is possible on a hardware wallet like a Ledger, but rates are for the most part higher on other platforms. Platforms like Celcius or Nexo lend out your coins and give you really high-interest rates. These payouts are harder to get when your money is not on a platform but on a hardware wallet. This again comes at the risk of not owning your own coins, I would not recommend this.
A hardware wallet costs money to buy. A cheap one will be around $50, but even that for most people is not worth it for the amount of crypto they own. You need to weigh the benefits versus this price, wallets like Exodus for your PC are free.
You are in charge of protecting the wallet and the passphrase of the wallet. If you lose your 12/24 word phrase and are not fast enough, you can lose all of your cryptocurrencies.
Hardware wallet
You made the choice to buy a hardware wallet, now what? There are a lot of options of wallets, but for beginners who want a lot of choice in supported coins I would recommend 2 different brands:
Ledger
Nano S (ref)
Nano S (no ref)
Trezor
Model One (ref)
Model One (no ref)
These brands are in my opinion the best to buy. I bought a Ledger Nano X myself and will make a review in the future. Some other reputable brands include Ellipal, KeepKey and Bitbox.
Starting with your wallet
So you just got your wallet. I will be making an in-depth future article on how to start using a hardware wallet, but I will quickly share some safety tips.
Make your seed phrase 24 words long (some wallets default to 24) and store it on a piece of paper or some other material.
NEVER NEVER NEVER let a keyboard type your phrase or make a picture of it. Some way or another someone will find it and your cryptos will be at risk. Keep it on paper or maybe a safer solution like Crypto Steel.
Always check if the wallet is genuine, most sellers have a page to check this. Here are some examples: Ledger, Trezor.
Those are some quick tips.
Conclusion
In conclusion, a hardware wallet is the safest way to store your cryptocurrency, but also restricted in some ways. I will be doing a more in-depth article about some wallets and how to start using a hardware wallet. If you want to dive a little deeper or get some recommendations, watch this video by Coin Bureau.
Let me know in the comments what kind of wallet you use or if you have any questions.
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