Hardware Wallets are those cold wallets that have their independent hardware to store your private key and take them offline when not in use.
Almost all hardware wallet wallets are cold wallets because custodial hard wallets have not yet entered the crypto markets. When they do, Glossary.Today will provide all the relevant information here.
Although the terms hardware wallets and cold wallets are used interchangeably, they can differ sometimes.
Hardware Wallets vs Cold Wallets
Cold Wallet is a much more generalized term to refer to a wide range of crypto security solutions like Crypto Vaults (used by exchanges ), Hardware wallets, and paper wallets.
However, Hardware wallets are specifically those devices that store your private keys and are mostly used by retail users.
Choosing between different cold wallets depends on your needs.
- If you need a reliable solution for your crypto investments, use a general hardware wallet like Ledger Nano S. or Trezor.
- If you need a secretive wallet for whatsoever purpose, use a paper wallet.
- If your needs are at the level of institutions, you can use the services of a crypto cold storage solution also known as a crypto custodian.
Security
A hardware wallet enhances security by taking your private keys offline when they are not in use. This prevents undue access and attacks from hackers as your private keys are offline.
However, access to those keys is crucial. If you lose them, you might get permanently locked out of your account.
With new hardware wallets, you also get a mnemonic device that uses small letter cubes to construct your seed phrases and remember them.
You can also use a piece of paper to note down the private key or seed phrases.
Note: The terms Recovery Phrases and Seed Phrases are often used interchangeably, so don’t get confused.
Associated Risks
Hardware wallets do have some associated risks.
- The largest risk is the usage of private keys. Being self-custodial, users are responsible for their hardware wallets and if they lose the private key or forget the recovery phrases, they are locked outside of their wallet.
- The second risk is the damage to the hardware. However, with a new wallet, your access to your funds can be easily restored.
- They are also a bit challenging for new users who might have to encounter a steep learning curve.
- Further, hardware wallets do have the risk of behaving erratically when new firmware is updated.
Best Practices
Keep Your Hardware Safe
It goes without saying that hardware must be protected from water, liquids, dust, direct sunlight exposure, children, animals, and other physical damage among many other things.
Keep Your Private Keys Private
Private keys are named so for a reason. Anyone who even sees your private keys once can access them from anywhere. Therefore, it is of utmost importance that they must remain private at all times.
The best way to do so is to write your seed phrases and keep them somewhere only you can access.
Regularly Check Your Wallet
It is critical to check on your wallet and crypto balances say once in a month. This is because there have been enough cases where hardware wallets were drained despite nothing wrong with them.
Ensure Firmware is Updated
An updated firmware is needed to ensure your wallet enjoys the highest grade of security and you have the best peace of mind. Though there are some issues, most of them aren’t frequent or occur as widely as you might think.
