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The following article seeks to answer questions that many probably have about hardware wallets. For starters, perhaps the biggest question many pose precisely: What exactly is a hardware wallet?
The term ‘wallet’, is a little bit of a misnomer here, and to avoid confusion, we will first have to dispel any ideas that these sorts of wallets are anything like the traditional wallets we’re used to. Unlike physical or e-wallets (such as Skrill), these wallets (also known as cryptocurrency wallets) don’t actually hold any money.
As it is already widely known, cryptocurrency works via a decentralised, peer-to-peer system, known as blockchain, storing any form of cryptocurrency in any place would be impossible as that would imply a centralisation within the system. Cryptocurrency can’t be stored because the concept of storing itself implies centralising the money in a specific location.
Instead, cryptocurrency ‘floats’ freely in blockchain technology, which is publicly available to everyone. Thus there are two important and well-founded questions worth asking: firstly, what are such wallets, used for? Secondly, why should one invest in one, in terms of functionality?
The main challenge with cryptocurrency not working like fiat currency is that it’s rather difficult to say what money is yours or not. In fact, without a cryptocurrency wallet, it becomes virtually impossible to tell what money is yours, because it’s all ‘public’ money, and if the exchanges you make get hacked, ‘your’ money is lost forever.
With fiat currency, this problem is easily solved because you’ll have your name to the money, in some way or another. That way, ownership is easily determinable. Cryptocurrency wallets, however, don’t put your money to your name, but instead contain cryptographic keys that secure all your transactions and give you a unique wallet address, tying down the transaction to you.
So, how do these wallets actually work? To fully understand this, the first step is to look into the cryptographic generation and also understand that there are 3 different types of cryptographic wallets. Understanding exactly what it is that cryptocurrency wallets do is quintessential. As already mentioned, cryptocurrency wallets contain cryptographic keys that render all your transactions secure.
These keys are generated via cryptographic algorithms based on complex mathematical problems, generally involving very large, randomly generated numbers. These algorithms result in 2 kinds of cryptographic keys: public and private keys. Having a public key doesn’t risk security breaches because their function is to allow users to effect payments to other users.
The private keys, on the other hand, allow users to operate their own wallets. The way it works is that when one user wants to make a payment to someone else, that user sends a ‘message’ that is encrypted via the second user’s public key. When that message arrives, the other user’s corresponding private key decrypts the ‘message’ and the transaction is effectively rendered.
If the private and public keys don’t correspond, the message cannot be decrypted and the payment cannot be effected; hence, it’s important to keep the private key confidential, since it ensures that the money you’re receiving is effectively yours. This is because being the owner of the private key automatically makes you the owner of the money you’re receiving from payments addressed to your wallet.
Finally, cryptographic wallets can be either in software, hardware or paper forms. This article’s main focus is on hardware wallets, which have advantages over their software and paper counterparts, making them far more secure and practical. The first advantage is that hardware wallets are invulnerable to computer viruses that would otherwise harm software versions of cryptocurrency wallets.
Moreover, the private keys are stored away in a secure section of the hardware wallet, and the wallet always encrypts them. Also, hardware wallets needn’t be connected to the internet, making them impervious to hacking. Lastly, using hardware wallets is rather quick, greatly reducing the chance of attack, and making them more practical than paper wallets (which are literal pieces of paper).
Hardware wallets are named as such, exactly because they’re physical devices. There are physical and configurational aspects to using hardware wallets. The physical aspects of the device enables ‘cold storage’.
The phrase ‘cold storage’ simply means that the storage isn’t ‘hot’, which, in layman’s terms means it’s not connected to the internet. When not connected online, the device is impervious to any cyberattacks, such as hacking. Moreover, since it’s a piece of hardware, whilst far less vulnerable to cyber attacks, it can get lost, stolen or damaged.
This means that you’ll need to take special care of your device to make sure it’s safe from harm, and secure from being stolen or lost. Thankfully, however, even in such situations where your device has been stolen or has gotten lost, the best hardware wallets on the market always come with the necessity of setting up a PIN to protect your device from malicious activity.
As for the configurational aspect of hardware wallets, when plugging in the hardware wallet to your computer, you’ll need to set it up. The first step is generally sorting out the security features of the device. All the devices that we’ll covering in the upcoming sections require you to create a PIN code which will secure your device against theft.
After setting up the PIN code, your device might also have you set up further security measures, like setting up a recovery seed. After setting up these security measures, you’ll need a few associated programmes to actually use the hardware wallet, and these are software wallets. Don’t worry, however, your public and private keys will still be stored in your hardware wallet.
With your hardware wallet set up on your computer, and your software downloaded, you’ll be able to use your hardware wallet! Now let’s take a look at some of the best hardware wallets available on the market; we’ll look at their features, their advantages, disadvantages, what currencies they can hold.
Kicking off our list of exemplary hardware wallets is the Ledger Nano X, which, funnily enough, looks like a USB pen drive, making it quite inconspicuous. Ledger, a Paris-based company, is arguably one of the most trustworthy companies when it comes to hardware wallets, so you know you’ll be getting your money’s worth!
The Nano X is Ledger’s latest offering, resulting in one of the most secure hardware wallets out there that is trusted by professional traders and amateur cryptocurrency enthusiasts alike, thanks to the state-of-the-art chip technology employed in its construction.
The Nano X can connect via USB to computers or laptops that run on either of the following operating systems: Windows 8 or newer; Linux; and MacOS (10.8+). What’s more, it can also connect by Bluetooth to your mobile phone; this can be done only if your mobile runs on either Android 5 Lollipop, or iOS 9 or higher.
The option of connecting via Bluetooth is a new feature that was lacking in the Nano S. Using this version of Ledger on your phone requires you to download the associated software, which is the Ledger Live mobile app. The Nano X’s rechargeable battery and the ability to connect it to your phone means that the Nano X is truly portable.
You can use the Nano X anywhere, so long as you have internet (and this can easily be acquired by either WiFi, 3G or 4G). This makes the Nano X perfect for those traders that find themselves constantly on the go. Furthermore, once you connect the Nano X to any of your devices, you’ll need to set up a PIN, recovery seed and password for your mobile app.
This might seem somewhat confusing, particularly if you are just starting out; however, this is fantastic news for those of you that enjoy the extra layers of protection! Moreover, the Nano X holds a massive amount of space, and, in fact, it’s designed to store up to 100 applications at once!
Finally, the Nano X is able to hold over 1000 different cryptocurrencies, with more and more being added to the list regularly. Of these cryptocurrencies, one can find cryptocurrency staples like Bitcoin, Bitcoin Cash, and Ethereum, and other cryptocurrencies like Litecoin, Dogecoin, Dash, amongst many others.
Next up on our list is the Ledger Nano S. This is the Nano X’s older brother, and whilst it’s older than the Nano X, that doesn’t mean that it’s by any means obsolete, and you’ll find that it’s still as useful as the very day it was revealed to the world. In fact, its popularity amongst traders and crypto-geeks should speak for its usefulness!
The Nano S has a few differences from the Nano X, including the lack of Bluetooth and far less storage space, which aren’t large differences, unless you’re not a seasoned cryptocurrency trader. But, the biggest difference is the price! In fact, the Nano S’s lower price (€59, whereas the Nano X costs €119) makes it the ideal Ledger hardware wallet for beginners!
The storage difference isn’t as big as you might think: in fact, you can still download up to 18 applications. Moreover, the Nano S is compatible with the same operating systems as the Nano X, namely: Windows 8 and higher; Linux; and MacOS (10.8+). Another slight difference that the Nano S has over the Nano X is that the Nano S comes in different colours.
One good and undying feature is the fact that, much like the Nano X, the Nano S is also a very secure hardware wallet, thanks to its status as a cold storage device and the extremely secure chip used in its circuitry. Furthermore, its shape also resembles that of a USB pen drive, which makes for an regular-looking device, making it less likely to be stolen.
Similarly, the Nano S also has you set up both a PIN and a recovery seed, which is a fantastic amount of security, albeit a little confusing for those starting out using such devices. But this shouldn’t faze users, since the Nano S is user-friendly, and the setting-up processes of both the PIN and the recovery seed are pretty straightforward!
Finally, you won’t find the Nano S lacking in the number of cryptocurrencies it’s compatible with! Much like the Nano X, the Nano S supports over 1000 cryptocurrencies, including the widely sought after and used Bitcoin and other very popular altcoins, like Bitcoin Cash, Ethereum, Litecoin, Dash, Ripple, and so on.
Trezor is thought to be the original hardware wallet innovator. Built by SatoshiLabs, it has quickly become one of the most popular hardware wallets on the market, and with good reason.
Although not as inconspicuous and simple-looking like the Ledger hardware wallets, previously mentioned, Trezor has implemented a security system in their wallets that make them quite nearly impregnable, and an extremely secure wallet on the market. This system is the PIN code that you create when setting up the device.
The PIN code system Trezor has implemented makes it impossible to even try to crack said code. Firstly, the PIN is randomly generated every time you plug in the Trezor One into your computer.
Secondly, after each incorrect guess a waiting time is imposed, and with every incorrect guess, the waiting time is doubled. This can make the waiting time last considerably – making guesstimations virtually impossible! Moreover, if you ever lose your Trezor hardware wallet, you’ll also be backed up by a 24-word recovery seed.
The recovery seed is, for extra security, randomly generated offline, which makes sure that the recovery seed can never fall in the hands of hackers. Moreover, the Trezor One has a few other security features, including the blind matrix that randomizes the position of the PIN code when entering it, two-factor authentication, and the multi-passphrase encryption, that make this wallet super secure.
Thankfully, the Trezor One is compatible with a few different operating systems; these include: macOS 10.11 and higher; Android OS; Linux; and Windows 8 or higher. Speaking of compatibility, the Trezor One also supports over 1000 different coins, including staples like Ethereum, Bitcoin, Bitcoin Cash, and other popular altcoins like Dogecoin, Dash, Zcash and many more.
With these reasons in mind, we can easily see what makes the Trezor One such a popular wallet! Moreover, it offers all these features for the affordable price of €59! However, a minor shortcoming is that the Trezor One doesn’t support a few altcoins, like Ripple and Monero, which might bother certain professional crypto-traders.
The Model T can be considered an improved version of the Trezor One due to certain differences that make the Model T much more in tune with modern technology.
A key, but not very significant difference between the two wallets in that the Model T uses a touchscreen instead of the 2 buttons employed by the Trezor One. This is a pleasant improvement from the Trezor One, as it’s an increase in screen size: whereas the screen of the Trezor One is 128×64 pixels, the Model T‘s screen is 240×240 pixels.
The difference in price, however, is rather larger than what you might be hoping for: the price of the Trezor Model T is €180.29, which is quite a bit more than the price you’ll be paying for the Trezor One. But, is the difference in price justifiable? Let’s look at the Model T‘s features together, and as a user, you can draw your own conclusions.
Another difference that you’ll find between the Model T and the Trezor One, is that the Model T holds slightly more altcoins than the Trezor One, which are: Monero, Ripple, Tezos, and Cardano. While this is a rather minor difference, it at least offers a slightly wider range of cryptocurrencies, which is great for very serious traders.
A similarity between the two hardware wallets is that the Model T is compatible with the same operating systems like the Trezor One, which is rather convenient if you decide to purchase both Trezor wallets. However, a major difference between the Model T and the Trezor One is the security measures that have been implemented in the Model T.
The Model T utilises FIDO2 authentication, the FIDO Alliance’s (Fast Identity Online) project to ensure a secure authentication process when connecting to services linked online. The goal of FIDO2 authentication is the removal of passwords, which are becoming increasingly more vulnerable to cyberattacks.
In fact, using the Trezor Model T won’t involve any passwords at all, and the cryptographic authentication that FIDO2 uses is quite similar to the public and private key system previously explained. Moreover, it uses other security measures like U2F (Universal 2nd Factor) authentication, that makes for one of the most secure hardware wallets on our entire list.
Unfortunately, KeepKey is the most conspicuous and least portable wallet of the list, but definitely one of the most robust and well-built. KeepKey is also the youngest company on our list, having been founded in 2015 and later acquired by Shapeshift in 2017.
The KeepKey wallet looks like a mini tablet or a rather large phone, which is why it might stick out like a sore thumb if you decide to carry this device around. Moreover, the device itself is rather heavier than any of the other wallets, weighing in at about 55g.
While it might still sound rather light, it’s still heavier than both the Trezor wallets (which weigh in at 12g and 22g for Trezor Model One and Model T respectively). It’s also considerably heavier when compared to the Ledger wallets (which weigh in at 16.2 g and 34g for the Ledger Nano S and X respectively). This means that while it cannot be considered as heavy lifting, its rather bulky size (38×93.5×12.2 mm) and weight cannot be considered as pocket friendly.
However, the size of the wallet allows it to have a rather larger screen than the other wallets, which is fantastic for people with eyesight problems and those who don’t want to strain their eyes trying to read small script. Unlike other wallets, KeepKey only has one button, which can be a good or a bad feature, depending on user preference.
One of the biggest downfalls of KeepKey is the fact that when compared to the rest of the list, it supports the least amount of cryptocurrencies – amounting to a little more than 50 cryptocurrencies. Of these cryptocurrencies, one can find what are arguably the most popular cryptocurrencies out there, including Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Dash and Dogecoin.
Nevertheless, considering the inclusion of Bitcoin and other very popular altcoins, the limited range of cryptocurrencies supported by KeepKey isn’t that big of a drawback as it might seem. However, for very serious traders who pay close attention to even the most minor fluctuations in a wide range of coins, this might prove to be a serious shortcoming.
Moreover, many users claim that the KeepKey customer service team isn’t the best in terms of service offered. Finally, however, the security features of the KeepKey hardware wallet are definitely up to par with all the others listed. It has the whole shebang of having PIN code and a passphrase, but it’s also an HD (hierarchical deterministic) wallet which ensures an excellent level of security!
Without a doubt, like any purchasing decision, choosing the best hardware wallet takes time and research. Moreover, considering other deciding factors such as price and whether it’s targeted towards novice or seasoned traders is also vital.
With over 1000 supported cryptocurrencies, Bluetooth connection and a rather impressive storage space, the Ledger Nano X is definitely a top contender on the list. However, its price tag of almost €120 is far from modest. So perhaps this kind of hardware wallet is best reserved for experienced traders who appreciate the option of trading on the go.
Nevertheless, it’s still more worthwhile than the Trezor Model T, which costs €60 more, yet lacks certain features. That said, the security features of both the Trezor models are virtually impregnable, which justifies their price.
Furthermore, even with KeepKey‘s lower price, it offers less features than the other wallets we mentioned. A decent hardware wallet for all intents and purposes, but for a slightly higher price you’ll have yourself a top-notch hardware wallet, like the Ledger Nano S or the Trezor One, the most value for money wallets on our list.
Whether you’re a veteran trader or someone who’s still learning the ropes, a hardware wallet is quickly becoming an indispensable tool for any crypto enthusiast and investor. This owes to the fact that they offer an unprecedented amount of security and practicability in the cryptocurrency world.
Indubitably, looking into the key features, pros and cons of hardware wallets in today’s market is indispensable and the above list is testament to this. Therefore it’s safe to say that whether you’re a novice or seasoned trader, doing a fair amount of legwork and finding out which wallet suits both your needs, and ultimately lifestyle is beyond essential.