From January 1, 2020, to December 17, 2020, Bitcoin had a jaw-dropping 160.4% return in gains. And with the rise of Dogecoin, NFTs, and cloud mining, it’s clear that cryptocurrency isn’t just a fringe hobby for the tech-savvy.
It’s a legitimate way to plan your financial future.
But as you start dipping your toe in the cryptocurrency water, you realize that there’s just one problem:
You’re not sure how you’re going to store your coins.
By our reckoning, a cryptocurrency hardware wallet is one of the most secure methods out there for keeping your money safe. But what exactly is a cryptocurrency wallet, and how does it work?
We’re about to tell you all you need to know about hardware wallets. All you have to do is keep reading.
What Is a Hardware Wallet?
Just like the name suggests, a hardware wallet is a hardware device that stores your keys for you. While you might read that and think “Well, that doesn’t sound like a big deal,” hardware wallets actually serve an important need for crypto investors.
If you’re even just a casual observer of the crypto markets, then you’ve already seen how compared to the likes of the Dow Jones or the Nasdaq, cryptocurrency is basically the financial equivalent of the Wild West.
In 2019, the collapse of QuadrigaCX resulted in the disappearance of as much as $190 million. This is a development that crypto enthusiasts are still trying to make sense of.
And then there was the Mt. Gox situation that saw a hacker make out with $450 million in funds.
A hardware wallet allows you to get the benefits of owning crypto without the risks involved with having your exchange hacked. The security features alone are one of the biggest selling points of these devices.
Pros and Cons of a Cryptocurrency Hardware Wallet
Okay. So we’ve explained what a hardware wallet is and we’ve given a general overview of how it works. Here’s a short list of the pros and cons, starting with the benefits:
Benefit #1: Your Private Keys Are Safe
A major problem with keeping your wallet on your computer is that you’re always one hack or one unscrupulous friend away from losing all of your crypto.
If you’re trying to cash in on cryptocurrency, the last thing you want is to wake up one day and realize that all of your coins have been wiped out through no fault of your own.
A hardware wallet makes it possible for you to keep your private keys away from your computer. This in turn makes it incredibly easy to avoid being hacked.
Benefit #2: You Can Hold Multiple Currencies in One Wallet
If you’re the type of crypto investor who likes to purchase multiple currencies while looking up others, having to hold two wallets for every crypto you add to your portfolio can be a real hassle. And it only gets worse from there as you add newer currencies to the mix.
The nice thing about hardware wallets is that some, like the Nano, will hold everything in a single, centralized location. You can collect more coins and experiment with new ones without needing to buy a new wallet every time.
Talk about a win-win.
Benefit #3: Many Hardware Wallets Have Self-Destruct Buttons
This one might sound very Bond-esque, but it’s true. Hardware wallets will generate a password that will only be known by you.
Now this might sound like a feature that gives you strong feelings of “Meh”. But if someone broke into your house, grabbed the wallet, and made off with the rest of your valuables, here’s how this feature could come in handy:
In order to access the crypto, a thief would need to enter your pin. But because you have the pin, they’ll more than likely have to guess at the number.
With a regular device like a phone, you might be thinking, “Wait—but then can’t they just keep entering the numbers in until they eventually guess the right one?”
They can try. But with a hardware wallet, after a few bad entry attempts, the device will delete your keys. As long as you keep a backup, it just doesn’t get any safer than that.
Benefit #4: You Don’t Have to Worry About Viruses and Malware
If you’ve ever had a Windows computer or a Mac, then you already know that software providers are forever finding security bugs and release patches and solutions. If you’re interested in holding your cryptocurrency over the long haul, using a laptop or a computer that could be compromised or hacked isn’t the best way to do that.
With a hardware wallet, you don’t have to worry about the safety of your crypto to the same extent. Your coins will be safely kept away in a hack-resistant device.
Benefit #5: Hardware Has a Stellar Track Record
Of course, we could spend even more time talking up the perks of hardware wallets. But none of that answers the question, “Will my crypto be safe if I buy this?”
Probably one of the biggest benefits of a hardware wallet is that it has a stellar track record. Unlike crypto exchanges and online wallets that have been compromised in the past, hardware wallets don’t have reports of theft attached to them.
And in a world where hackers and crypto thieves are always hard at work looking for ways to steal coins, the proof is in the pudding. That’s why you may want to make a purchase if you see wallets like the Ledger Nano in stock.
Are There Any Downsides to Using a Hardware Wallet?
We’ve just talked up the benefits of having a hardware wallet. But you may have been reading through all of that and asking yourself, “So what’s the catch?”
To that end, here are some of the risks associated with hardware wallets:
Con #1: Hardware Wallets Can Be Expensive
The saying “You get what you pay for” applies to just about everything that you can purchase, and hardware wallets are no exception. However, the truth is that there are makes and models that will easily cost you several hundred dollars to purchase.
Depending on how much use you plan to get from your wallet, this could very well be a small price to pay for the peace of mind that comes with making your coins unhackable while keeping control of your keys. But if you don’t plan to hold a lot of crypto, it might not be worth it to shell out for a hardware wallet that’s only going to house a $20 portfolio.
Before purchasing your hardware wallet, you may want to have some hard conversations about how much money you intend to invest in crypto and for how long.
Con #2: You May Have to Use a Paper Backup
Remember the previous scenario we mentioned with robbers and hardware wallets getting lost? Well, the solution that many crypto investors use is a paper backup, which is basically a phrase or a copy of your private keys that you store with your wallet.
Because it would be crazy to attach the backup directly to your device, many people choose to store their crypto code on a little card somewhere.
For obvious reasons, however, paper backups can compromise all of the security features that we usually associate with hardware. Once again, this is a question that depends on your general habits, your use of backups, and the lengths you’ll go to protect your crypto.
But either way, you may need to come up with a security plan for your paper backup if you decide to go this route.
Con #3: There’s a Risk of Running Into a Fake
Because a lot of crypto investors have chosen to buy hardware wallets, many scammers and entrepreneurial types have seen the demand for crypto security as a legit money-making opportunity.
As a result, it’s not unusual to go on eBay or Amazon and see similar-looking devices being sold as hardware wallets even if the level of functionality isn’t all the way there. If you’re not familiar with crypto or if you’re not accustomed to using a hardware wallet, it’s easy to browse the usual marketplaces and think, “Hmm… This looks like a bargain!”
But if you ever ended up in a situation where you needed the features provided by a top-notch hardware wallet, you’d be at a loss. The good news is that you can avoid this by purchasing direct.
However, the presence of copycats is a downside that you may want to be aware of as you navigate the hardware wallet market.
What Other Types of Crypto Wallets Are Out There?
Believe it or not, hardware wallets aren’t the only wallets you can choose to hold your crypto in. Other options include the following:
1. Web Wallets
These are wallets that you can access directly through your web browser. With this type, there’s no downloading, no installing, and no worries about looking out for the security of your own keys.
The big advantage of this is the convenience. With the ease of managing your email account, you can manage your cryptocurrency without having to also oversee all the technical details involved with your wallet.
However, web-based wallets come with major downsides if the site you use also has access to your private keys. This might not sound like an especially big deal while things are going swimmingly, but it can spell disaster if the site is ever hacked.
2. Mobile Wallets
Let’s say that you’re planning to hold some crypto but that you’re also leaning towards being a more active investor. Maybe you want to purchase things or get paid in Bitcoin. Maybe you want to loan your crypto out for a bit.
Mobile wallets make it possible for you to send and receive crypto with QR codes. In addition, you can check on and access your wallet without having to sit down and head to your desktop.
The risk with this type of wallet is that because it uses software, the internet, and your smartphone in many cases, your coins will be vulnerable to software and viruses. That’s why you’ll want to have your private keys backed up in order to protect your crypto from being lost.
3. Desktop Wallets
Just like the name suggests, this is a crypto wallet that involves downloading and operating a wallet on your desktop computer. Basically, each time you create a new wallet, you’ll get a new file on your desktop that holds all the information needed in order to access your crypto.
One of the big perks of this wallet type is that you have total control over your keys and your wallet. But on the other hand, if you lose the file or if someone hacks into your computer, your crypto could potentially be lost forever if you don’t have a backup.
4. Paper Wallets
If you’re used to managing your money through a bank, the idea of holding money on paper might take a minute to get used to. But this functions the same as a standard wallet in many ways except for the fact that your keys and your crypto address are literally printed out on a piece of paper.
These will often appear in the form of QR codes. And while these wallets are insanely difficult to hack into. This can be a hassle to deal with because you have to keep generating new wallets in order to maintain access to your funds whenever you spend your crypto.
Not only does this make it easy to lose your coins, but the lack of ability to reuse paper wallets can force you to create a literal paper trail in order to keep track of your coins.
Should You Get a Cryptocurrency Hardware Wallet?
You can’t spend much time in the world of cryptocurrency without running into the digital vs hardware wallet debate. And it’s for good reason.
While the digital wallet has a lot going for it in terms of convenience and quick access, a cryptocurrency hardware wallet will give you a secure place to keep all of your crypto assets. And with hardware wallets becoming more and more sophisticated, accessing and managing your crypto is simpler and easier than ever if you go the hardware route.
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