What is a Storage Wallet?

When it comes to cryptocurrencies, how and where you store your money is very important. The crypto world is quite dangerous because there are malicious people as well as many strategies to steal users' funds. Developing a strategy to protect your investments should be your priority.

There are many different storage options you can use. Each of these has its own balance of security and usability. Exchanges are the first option most frequently preferred by potential new users. These platforms allow many people to have their first interaction with cryptocurrencies and allow users to keep their cryptocurrencies in an online wallet. However, on exchanges, the user does not technically control the cryptocurrencies he owns. If exchanges are taken over by hackers and existing cryptocurrencies are taken offline, it may not be possible to recover withdrawn or smuggled cryptocurrencies.

Users may not feel the need to move their cryptocurrencies from the exchange to another place. In order to do this, they may not have the necessary knowledge and skills, or they may see trust-based solutions as safer. The idea of ​​taking control of cryptocurrencies sounds daunting, but in terms of security, hardware wallets are one of the safest.

What is Private Key?

The private key is a kind of identity, your passport for the crypto ecosystem. In many ways, it resembles real-life switches. With this information, you can unlock your cryptocurrencies and spend them. If this key falls into the hands of someone else, the person holding the key can easily steal your cryptocurrencies. If you lose your key, you will lose access and there is no forgot password button in a decentralized environment. At the same time, there is no bank that you can ask to reverse or cancel a fraudulent transaction. Most fundamentally, private keys must be kept secure and secret. These keys are extremely important and valuable to cryptocurrency users. As you can imagine, hackers and scammers are constantly trying to steal private keys using phishing techniques or malware to get users' cryptocurrencies.

Keys are pretty easy to hide because they only consist of numbers and letters. They can be written down on a piece of paper and stored in a safe place. In order to carry your cryptocurrencies and to use the key, these keys must be in a device that will create proof that you can spend your cryptocurrencies.

What is a Hardware Wallet?

Hardware wallets are devices that are specially designed and manufactured to securely store private keys. One of the main reasons they are considered more secure than desktop or smartphone wallets is that they never connect to the internet or an online network. Thanks to this feature, the number of tools that malicious people can use in their attacks is often reduced because external remote access to the devices is not possible. A good hardware wallet ensures that private keys never leave the device. The keys are normally kept in a special place on the device and this particular section does not allow the key to be removed.

Even if the wallets are installed on infected personal computers or smart phones, private keys do not face any risk of leakage, thanks to their design. These wallets interact with software that, when plugged into any device, allows users to view their balance or make a transaction.

How Does a Hardware Wallet Work? Why Use a Hardware Wallet?

Wallets that keep private keys on computers or smartphones connected to the Internet make users' cryptocurrencies vulnerable to many different types of attacks. Malware can detect activities related to cryptocurrencies on these devices and seize cryptocurrencies belonging to the user.

It is possible to define a hardware wallet as an unopenable vault with a very small range. When the user wants to create a transaction that the network will accept, he sends the transaction through this small interval. There is only one transaction validator on the other side of the range. Even if someone has accessed your hardware wallet, your additional protection in the form of a PIN code helps. Devices usually reset themselves for security purposes if a certain number of incorrect combinations are entered. Cryptocurrencies that are not actively used (that are not spent, staked, loaned or used for trading) should be kept in cold storage.

Hardware wallets should be backed up in case of loss, theft or damage. Usually, the hardware wallet reminds users of seed phrases (a list of words that make it possible to access cryptocurrencies on a new device) when they are installed for the first time. This sentence authorizes anyone to spend cryptocurrencies, so it must be carefully preserved. It is recommended that users write it down on a piece of paper and keep the paper in a confidential and absolutely safe place.

Hardware Wallets Restrictions

Hardware wallets, like other types of storage, have their own profit and loss balances. Although they are one of the most reliable tools for storing cryptocurrencies, there are certain limitations. Hardware wallets require a trade-off between security and ease of use. While smartphone/software wallets are easy to use, hardware wallets can be more difficult to use. Despite this, hardware wallets are not completely flawless, bug-free, or perfect. In case of a physical threat, the user can unlock the wallet for the attacker. Skilled hackers who physically take over the wallet can crack the device's password. To date, there has not yet been a real-life instance where private keys have been seized from a hardware wallet.

When security vulnerabilities are reported, manufacturers usually close them quickly. However, it is not impossible to attack, researchers cite examples of attacks for even the most popular wallets. Supply chain attacks can also be effective in compromising the security of hardware wallet devices. These attacks are carried out by hijacking the wallet before it reaches the user. At this point, the wallet can be manipulated in a way that weakens its security, and crypto money can be stolen after the user deposits crypto money. Another limitation is that hardware wallets put control in the hands of the user. It also means that if something goes wrong, it will not be possible to fix it.