Hardware Wallet Guide for Cryptocurrency Storage
If you zoom out on most cryptocurrency price charts, you will see that since its inception, the cryptocurrency market valuation has gone only one way; up. Many coins are now at 10 or even 100 times that of their original price and their value has skyrocketed. This is where the issue of storing these coins comes into play. Many newbies who purchased towards the end of 2017 in the great bull rush may still have their coins sitting on an exchange. But the question is ‘How safe are your coins?’ With value increasing, many people can start holding some serious money in cryptocurrency and there needs to be a safe way to store it. Thats where this hardware wallet guide comes in.
A cryptocurrency enthusiast, whether serious investor or newbie, has four choices to store their coins, or rather, their private keys, remembering that all coins and tokens always stay on the blockchain. They can choose to keep them on an exchange, store them in a software wallet, a paper wallet, or store them in a hardware wallet.
As the name suggests, a hardware wallet is a physical hardware item that stores your public and private keys safety and securely offline and within the device itself. Although they can appear on the surface to be intimidating and complex to a newbie, they are quite user-friendly and have become an essential item if you hold any kind of serious money in cryptocurrency.
One of the mantras that has been around since cryptocurrency stormed the world and gained immense value is “If you don’t own your private key, you don’t own your coins.” This means in layman’s terms that if you keep your coins on an exchange, you are not the owner of the coins, the exchange is. You simply have access to and assigned rights to the coins, but if there is ever an issue with the exchange being hacked, going bankrupt, or going offline, you, my friend, are stuck.
Why do cryptocurrencies need to be stored?
Put simply, cryptocurrencies such as Bitcoin work by sending signed messages of payment across the Internet. These messages (referred to as transactions for simple understanding) are signed using a special algorithm. In order to sign a Bitcoin transaction, you need to hold the key for the address where the coins are stored on the blockchain. While you may have your private key in a software wallet or paper wallet, this is where a hardware wallet shines. A hardware wallet is your private key. Think of a hardware wallet just like a set of car keys. You may own the car but without the keys, you are not going anywhere.
Yes, it is true that paper wallets and software wallets act in much the same way as a hardware wallet, however there are distinct differences and advantages with owning a hardware wallet. Firstly, for anyone who has trouble remembering passwords or where they stash their spare house key, a paper wallet is not recommended. Creating and storing a paper wallet requires high discipline to keep it safe, intact and protected. Software wallets are robust and mostly secure, with many offering fantastic user experiences and easy access to coins, but you must remember, a wallet that is always online with access to the internet (think a wallet on your mobile phone that’s always connected) is a wallet that has some exposure to risk, i.e. being compromised or hacked in some way.
A hardware wallet, however, is an offline device, only occasionally going online when transactions are required to be carried out and it is required to be plugged into a computer. Even then, a hardware wallet isn’t even required to go online to receive funds, only to send funds. And further, a hardware wallet such as the Ledger Nano S can be used in conjunction with an offline mode in MyEtheruemWallet (MEW), which allows a transaction to be sent without ever going online with the Ledger device connected to the internet.
Hardware Wallet Technology
Essentially, a hardware wallet is like a USB key that stores your public and private keys. Known as BIP39 (Bitcoin Improvement Protocol), complex mathematics are used to take a random set of 24 words and use these words to generate public and private keys – randomly-generated numbers which are your real ‘passwords’ for signing transactions. This 24-word seed is created when you setup the wallet and is essentially your backup to your coins. Losing this 24-word seed means your coins are gone forever, so it’s of utmost importance that you keep this 24-word seed hidden away, safe (ideally in a different location to your actual wallet). But not too hidden that you cannot recover it if you need to. If you lose your wallet or it breaks, you do not lose your coins. It’s an important distinction to note that your coins never get stored or transferred to a hardware wallet – they are simply devices which store the public and private keys and thus allow access (custodianship) to your coins stored on the blockchain.
Many people think of hardware wallets as a safe for the bulk of their investments or life savings, and a software wallet for their spending money, like an everyday bank account. Exchanges can be useful for storing coins if you plan to day-trade with cryptocurrencies, but it’s important to remember you do not own your coins if they are stored on an exchange. However, exchanges also have their pros such as protecting your coins with enterprise-level firewalls and security, taking the hassle away in having to manage your coins, and offering a simple and easy platform to be able to spend coins quickly without having to transfer them to an exchange first.
See our Australian exchange guide for more information
Hardware wallets typically have a secure element and firmware that controls how the device operates, i.e. like an operating system such as macOS. These secure elements are chips that only allow signed code to run on them, ensuring that no malicious code ever gets close to compromising the security of the device, even while online. Think of a secure element in a hardware wallet as similar to your iPhone that handles Apple Pay and Touch ID. These secure element chips are only granted to manufacturers who sign a confidential disclosure agreement, thus making their use and specs even more secretive and difficult to exploit.
For example, with the Ledger Nano S, one of the most popular of hardware wallets used today, during the manufacturing process a digital certificate is installed on the Ledger’s secure element. When the device boots up, the computer sends a security challenge and the device must answer correctly therefore eliminating any tampering or middleman attempts to intercept code between the Ledger and the computer sending the transaction.
When sending cryptocurrency off your hardware wallet, a hardware wallet will typically sign the transaction with your private keys only once you have confirmed the address on the digital display of the device, giving the user even more protection that your transaction will not take place until you physically confirm the details are correct. This protects the transaction and private keys of the user even if using a compromised or vulnerable computer.
Hardware Wallet Guide for the most popular
The following is a list of the most popular hardware wallets to store cryptocurrency and tokens offline (ranked in no order), as well as a paper wallet option and a unique solution to make Bitcoin payments via hardware keys. Naturally, like all products, each has their strengths and weaknesses and we’ll cover these in pros and cons. There are no clear winners when it comes to hardware wallets, however, one of the main factors for a product’s useability and worth comes from the number of tokens it is compatible with. The more tokens, the better. Ease of use is also another factor; does the hardware wallet allow newbies to learn and use the wallet without a huge technological understanding? Its cost, build quality and firmware are also factors to be considered when purchasing a hardware wallet.
Ledger is a French-based technology company founded in 2014 that makes the most popular hardware wallet, that being the Ledger Nano S. Looking very much like a typical USB thumb drive, this hardware wallet packs a punch in both features and security.
It features a small display screen on its side, along with two buttons to enable users to confirm transactions once the wallet displays the transaction address on its screen. It also requires confirmation using the physical buttons on the device to approve the transaction which is a fantastic anti-malware second factor security feature.
Ledger Nano S runs on several Chrome-based official apps that are required to interact with the hardware wallet and send and receive transactions such as Bitcoin, Ethereum and Ripple. For other cryptocurrencies such as NEO or ERC-20 tokens, the Ledger is compatible with many popular software wallets creating a fantastic experience where a user can login to wallets such as MyEthereumWallet using their Ledger’s private key for not only the highest security but ease of use (i.e. not having to create private keys for several different wallets).
See our Ledger Tutorial for setting up a new device
Your private keys are never held or known by Ledger or a third party; they are locked away in the Secure Element which is a chip based on a dual chip architecture (ST31/STM32, Certification level: CC EAL5+). On the secure element, the device’s firmware integrity is guaranteed by cryptographic attestation and each time the Ledger is booted up, it checks to ensure there has been no physical tampering to its internals, preventing anyone from intercepting a transaction.
The Ledger Nano S is a hardware wallet that remains decentralised. You are – in essence – your own bank which is one of the biggest selling points of all cryptocurrency.
- Where to buy: Ledger Official Site
- Price: Approx $150 AUD
- Token compatibility: A range of the most popular cryptocurrencies including Bitcoin, Ethereum, Litecoin, Dash, NEO, Ripple and Zcash.
- Pros: Robust, simple hardware wallet; probably the best wallet currently to-date on the market. Has the largest amount of compatible cryptocurrency integration.
- Cons: Can only hold a limited number of apps at any one time due the limited storage capacity of the Secure Element. Slight learning curve to use for newbies. Occasional gateway/app glitches.
Trezor wallets are Ledger’s main competition in the crypto hardware wallet space, however, unlike Ledger which offers two different products, Trezor only has a single entry into the market but it’s an excellent entry indeed.
Setting up a Trezor takes mere minutes in a completely private, registration-free process. Similar to Ledger Nano S, it has a bright OLED screen to confirmation transactions and view wallet details. It’s a larger screen than the Ledger Nano S and offers guided instructions (as does the Ledger).
Trezor has full support of the major cryptocurrencies as well as operating systems including Windows, macOS and Linux, with both Firefox and Chrome browsers being supported (others may work – but not guaranteed). Unlike Ledger which has Chrome-based apps, Trezor uses its own website-based app to interface with the device and manage balances and transactions.
Check out our Trezor vs. Ledger Comparison video
One of the main advantages over the Ledger is the ability of the Trezor to display QR codes on its display. This is a fantastic feature when receiving and sending cryptocurrency since it ensures the address is accurate and copied straight from the QR code which no chance of mixing up a digit.
- Where to buy: CoinStop
- Price: Approx $180 AUD
- Token compatibility: A range of the most popular cryptocurrencies including Bitcoin, Ethereum, Litecoin, Dash, Zcash and all ERC-20 tokens.
- Pros: Quick and easy setup. Web-based interface. Can display the QR code for addresses. Prompts for backups and security.
- Cons: Short USB cable.
3. Keep Key
Keepkey is yet another hardware wallet similar to both the Ledger Nano S and the Trezor, featuring an OLED display and button for confirming transactions.
Each transition must be manually approved by KeepKey’s confirmation button. Similar to Ledger and Trezor, a seed phrase is created on the initiation of the wallet and kept by the user in case the wallet is lost or stolen. The Keepkey device is a larger device than Ledger and Trezor and features an ‘Apple-esque’ build quality with integration to your computer achieved through a Chrome-based app. A main advantage over its competitors, KeepKey features built-in ShapeShift integration which allows you to exchange/trade coin pairings within the app itself.
- Where to buy: CoinStop
- Price: $240 AUD
- Token compatibility: A range of the most popular cryptocurrencies including Bitcoin, Ethereum, Litecoin and Dash.
- Pros: Elegant design and OLED screen, very aesthetically-pleasing layout and screen animations. A slicker user-experience than Ledger and Nano.
- Cons: A larger device than Trezor and Ledger. A limited number of cryptocurrencies. Only a 12-word recovery seed.
4. Open Dime
Unlike Ledger, Trezor and KeepKey, OpenDime is a different kind of hardware wallet. Dubbed a Bitcoin Bearer Bond or ‘Bitcoin Stick’, it intended to be a portable payment system where you can load Bitcoin onto the USB-key and hand it to someone for payment and they can then access the private key and get their funds transferred to their own Bitcoin address. The device itself it very tiny, much more like a traditional USB key without its housing. All that’s required is a simply plugging in to a USB port on your computer and the device boots up opening the interface to create a Bitcoin address that is then tethered to that specific OpenDime.
Probably the most unique aspect of the OpenDime wallet is that in order to spend the funds on the device, you must break a ‘seal’ and remove the tab in the middle of the device. This essential destroys it so someone can spend the funds it contains. It does seem like an expensive way to spend and pass on Bitcoin, however, it does mean a sealed OpenDime can be trusted that no one has yet spent the funds it contains. The device itself will never reveal the private key until it is unsealed.
- Where to buy: OpenDime.com
- Price: $50 AUD for pack of 3
- Token compatibility: Bitcoin
- Pros: Unique portable payment idea, easy interface
- Cons: Device has to be destroyed in order to spend funds, therefore can be expensive if you wish to use OpenDime as a solution for multiple payments to people.
Unlike hardware devices, another option to backup your mnemonic seed words is to use what’s known as paper wallet. Now of course, there’s nothing stopping you from writing down your seed words in a diary, a notepad or even a napkin – however, there are specifically made kits for making things clear and simple in terms of protecting your crypto assets. Safewords is a kit that includes everything required to make a secure backup of your seed words needed to restore your cryptocurrency wallets.
The main advantage of a Safewords kit over simply noting down your keys on paper is the seed cards enable you to split your seed words into 3 partial keys, each of which is committed to one of the seed cards. Each card is then stored in an individual safewords envelope and sealed with an individually serialised tamperproof sticker.
Once your envelopes are prepared, each one can be stored in a separate location. One may be kept safely with you in your home, you may give one to a family member and the other you may give to your lawyer.
To recover your key, you must combine information from at least two of your cards together. Any two of your three cards gives you everything you need to re-create your private keys and regain access to your funds.
- Where to buy: Coinstorage Guru
- Price: $16.20 USD for the kit when using ‘CryptocurrencyAustralia’ discount code.
- Token compatibility: Any wallet that generates a seed for recovery
- Pros: Cheaper option than hardware wallets, paper cannot be hacked, easy to store and hide
- Cons: A backup only – no ability to transact like hardware wallets can. Need at least two of the cards to recover the seed.
If you ask us, hardware wallets are a must-have item for any crypto enthusiast looking at long-term holding of their coins for financial gain and use. With several notable exchanges running into issues of either hacking or facing severe site crashes, it is essential that you control and own your private keys so either all or the bulk of your coins are actually yours.
Further, it’s also essential that you remove yourself from as much risk as possible when it comes to cryptocurrency and the potential for loss of coins. Since there is no central authority or helpline to call if you lose your keys or run into a hacking issue, the responsibility lies on you to oversee the protection of your investment. This is where the safest of all options is a hardware wallet; an extremely safe, secure and easy way to manage your cryptocurrency going into the future, knowing that your investments are protected and hackers have little to no chance of getting anywhere remotely near them.
Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators’ websites before making any decision. Cryptocurrency Australia Media, or the author, may have holdings in the cryptocurrencies discussed.Referrals and affiliate links do earn us commissions but they are products or services we personally use and would not endorse if we did not believe in them.
Attribution – Images by Freepik and licensed under Creative Commons BY 3.0, with thanks.
Gary Denne is an Australian-born writer and technology evangelist with 20 years tech Industry exp. Loves crypto, stocks, cats, outdoors & healthy living. Not a fan of gluten ?