The exchanges and servers offering cryptocurrency hold an enormous amount of digital money and that is why they are the primary target of hackers. During the past recent years, there have been some different incidents when such cryptocurrency exchanges were hacked. In the year 2013, one of the major incidents of hacking of cryptocurrency exchange happened when Mt Gox was hacked. In this hacking incident, more than 0.85 million Bitcoin were stolen. The value of the stolen digital currency was $450 million at that moment. A few services like Coinbase has claimed that all the currency stored in their exchange is insured in case it gets stolen and they also claim that in case of a hacking incident, any loss of consumer’s funds will be covered by this insurance policy. However, this is probably not something one would like to put to the test.
Therefore, when the risks have been at large, the most secure way to keep your cryptocurrency safe is to store it in a cryptocurrency wallet. Although referred to as a wallet, a cryptocurrency wallet is nothing like a wallet you hold in your back pocket but possibly possess more resemblance to an online bank account. Because of its nature, blocks are not removable from a blockchain, and that is why they cannot be stored in a cryptocurrency wallet or anywhere. What you cryptocurrency wallet will store in it, will be the access to the blockchain in the form of protected alphanumeric encryptions commonly identified as private keys. These private keys are similar to a personal identification number (PIN) used in online banking. When these private keys are used, they reveal ownership of a public digital code, commonly identified as a public key, which will be required to access the address of your digital currency. This is the information, which will be secured by a cryptocurrency wallet. That is how your cryptocurrency wallet will work as a medium of protecting your access to your digital currency. You can access and use your cryptocurrency only if your private key matches with the public key. Apart from the fact that the primary reason behind the requirement of a cryptocurrency wallet is to have a reliable medium to protect your cryptocurrency, you must also consider the way you plan to utilize your currency before deciding what kind of cryptocurrency wallet you may need. In case you are determined to invest and looking for long-term storage, an offline wallet such as a hardware wallet will fulfill the purpose and will be a more secure option
A hardware wallet is an exclusive device, which is designed to deliver an extra fold of protection to cold storage options such as paper wallets. For instance, if you have your cryptocurrency stored in a paper wallet, your fund is only protected until you do not sing a computer. Once you use a computer to access your cryptocurrency, and the security of the system you are using has been compromised, it can result into the hacking of your account.
On the other hand, if you have opted for a hardware wallet, they have a security chip or something that can provide equivalent protection. This means that whenever you connect your hardware wallet to a computer to access your digital currency, you will not need to input your private key on the computer. You only have to input a pin code on the piece of hardware, which means that even if the security of a computer system has been compromised, you can safely trade your digital currency. Apart from protecting your cryptocurrency from the threat of a security breach, your digital currency stored in a hardware wallet will still be safe even if the hardware is broken or lost. To handle such situation, you will be provided with the seed words along with your hardware wallet. You can use these seed words to restore your access to your currency on a new device. Seed words are a string of random words used to reinstate your wallet and recover your cryptocurrency.
While hardware wallets are indeed the safest method of keeping your cryptocurrency secure, but they are worth investing in or not will be based on the amount of cryptocurrency you have. In order to use a hardware wallet, you will also require a software wallet to interact with the device. While all hardware wallets have their default software wallets, a few other software wallets can also be used with a hardware wallet.
Here is a comparison between the most widely accessible hardware wallets.
Trezor is a hardware wallet, which can be utilized for storing different cryptocurrencies such as Ether, Litcoin, and Bitcoin. Trezor has been considered as one of the most secure devices at present, and its popularity is mainly because of its user-friendly interface. The retail price of Trezor is $99, which makes it a suitable option for people who hold a significant amount of cryptocurrency.
Ledger Nano S is an entry level but widely popular hardware wallet. It comes as a compact USB device based on a smart card. The retail price is $65, which is low as compared to Trezor and it allows you to access your funds by merely using the device only and does not require you to connect it to a computer. This hardware wallet has some minor setbacks, which include a less advanced wallet software and lacking some other useful small features such as password management.
Keepkey is a hardware wallet, which has a large but attractive design. It is the second hardware wallet to come with a screen. The large screen size allows it to offer some additional security features in comparison to other hardware wallets. However, it can become a setback also because large screen size makes it inconvenient to carry in a pocket. Keepkey is available at a retail price of $99.