Cryptocurrency wallets and the importance of Hardware wallets

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What exactly is a wallet?

If you're new to the crypto space, you probably hear a lot of people talking about wallets alot; exchange wallets, hardware wallets, paper wallets etc. What exactly are these you might ask?

Here's a definition from Bitcoin Wiki

A Bitcoin wallet is a collection of private keys but may also refer to client software used to manage those keys and to make transactions on the Bitcoin network.

Basically, a wallet is sort of like your bank account number. It's means of storing your access to your cryptocurrency. Like when you have funds in your bank account and you know that the funds belong to you because you most likely created and put the funds in there (unless you inherited a trust fund or something like that lol).

There are two places crypocurrency assets can be stored: Online and Offline.

Online wallets (popularly known as hot wallets) and offline wallets (sometimes called Cold storage wallets because they isolate your private keys from the internet even while you are connected)

Online wallets are cool if you are planning to make use of your cryptocurrency assets regularly to make payments, trade or do whatever else you want to do with your assets.
However, if you do not intend to make use these assets in a long time (long term investments), then an offline wallet is the way to go.

TIP: Buy good coins, move to an offline storage, leave for 18months and come back to. Your investment will most likely double 😁😁😁
(That's not to say it's not possible it'll depreciate too lol. DYOR)

The reason for this is that online wallets might get hacked; with the most recent hack being the coincheck hack and a total of about $500M worth of NEM stolen.
You never really know how secure the wallet you are using is if you're using an online wallet. The coincheck hack happened because the company was using low security hot wallets to store users' assets .

When you make use of cold storage wallets, you sleep better at night because you are in better control of your assets.

Hardware wallets

According to the bitcoin wiki ,

A hardware wallet is a special type of wallet which stores the user's private keys in a secure hardware device.

Security cannot be over emphasized on the blockchain because blockchain transactions are not reversible and most blockchains are fairly anonymous. What this means is that if a hacker gets access to your assets and manages to send them out of your wallet, you most likely won't be able to recover those assets and their is no central authority to report to in most blockchains and transactions are irreversible.

Making use of a hardware wallet is a safe way to protect your funds from these hackers. This is because you are in complete control of your wallet because of the possession of the wallet's private keys. The private keys is used to sign transactions to verify that you are the person spending your funds.

The way these HW wallets work is that they store private keys in a completely Isolated environment from the computer.
When you want to spend your assets though, the app associated with the HW wallet sends a copy of the transaction to the HW and requests for permission. You then verify the transaction by clicking the “confirm button” on your device. The hardware signs the copy of the transaction internally using your private keys and then sends it back to your computer. In this way, your HW wallet's private keys cannot be compromised.

Although hardware wallets can be a bit pricey, some of the advantages of having a HW wallet are

1. Hardware wallets store and never expose your private keys to your computer. So even when you connect to the internet, your private keys cannot be stolen through a computer virus or malware.

2. Hardware wallets can hold multiple cryptocurrencies at the same time. Ledger Nano S can store up to 4 apps at a time and Ledger Blue can hold up to 10 wallets at the same time.

3. Softwares that run on hardware wallets are usually open source too so loop holes or back doors cannot be programmed into these wallets since there is an entire community looking out for the software security.

Reputable hardware wallet companies are Ledger and Trezor.

Ledger offers two main HW wallet: Ledger Nano S and Ledger Blue while Trezor offers the Trezor black and the Trezor white HW wallets.

There are also other types of wallets; software wallets and paperwallets.

Thanks for reading