{"id":100340,"date":"2023-09-14T14:29:54","date_gmt":"2023-09-14T14:29:54","guid":{"rendered":"https:\/\/www.techopedia.com\/?post_type=definition&p=100340"},"modified":"2024-10-28T10:56:35","modified_gmt":"2024-10-28T10:56:35","slug":"hardware-wallets","status":"publish","type":"definition","link":"https:\/\/www.techopedia.com\/definition\/hardware-wallets","title":{"rendered":"Hardware Wallets"},"content":{"rendered":"

What are Hardware Wallets?<\/span><\/h2>\n

A hardware <\/span>wallet<\/span><\/a>, also known as a cold wallet, is a physical device created solely for offline storage of cryptocurrency private keys. Contrary to popular belief, the wallets do not store the actual cryptocurrencies.<\/span><\/p>\n

Instead, they store the private keys since access to one’s keys is equivalent to accessing one’s crypto assets — they are always needed to sign <\/span>transactions<\/span><\/a>. <\/span><\/p>\n

Hardware wallets guarantee that private keys to sign internal transactions never leave the device, protecting them from external dangers like <\/span>viruses<\/span><\/a> or hackers. As a result, they rank among the safer ways to store cryptocurrencies.<\/span><\/p>\n

The devices are often small and portable, with some looking like USB drives or small plug-in devices.  <\/span><\/p>\n

Wallets can be bought from various companies such as Ledger, Trezor, Electrum, and others<\/a>. However, all wallets need three fundamental components to store and secure private keys. <\/span><\/p>\n

All wallets have a secure microcontroller that functions as the wallet’s “brains”. The microcontroller is responsible for signing transactions and maintaining and safeguarding private keys, among other crucial responsibilities. The private keys are kept safe on the secure microcontroller because it is shielded from the internet and built to withstand physical assault.<\/span><\/p>\n

For the user to interact with the wallet, a display screen enables the owner to view information. In this case, the information entails displaying the wallet’s current balance, transaction information, and instructions for the user to follow.<\/span><\/p>\n

Lastly, wallets also contain input buttons for users to choose options and browse the device’s menu. Typically, these buttons are used with the display screen to enable seamless device use. <\/span><\/p>\n

How Can A Wallet Prevent Crypto Hacks?<\/span><\/h2>\n

As mentioned earlier, private keys kept on an online wallet are susceptible to network-based theft, which is the nature of most crypto hacks in the sector. With a hot wallet, a single device online performs all the steps necessary to finish a transaction. <\/span><\/p>\n

A hardware wallet creates and stores private keys, digitally signs transactions using those keys, and broadcasts the signed transaction to the network.<\/span><\/p>\n

To safeguard the private keys, wallets store them offline and sign offline transactions. Hardware wallets do not communicate with other electronic devices unless they have been physically plugged into the device, which only happens when the owner is accessing their private keys.<\/span><\/p>\n

In the case of wallets, any online transaction is first temporarily transferred to an offline wallet stored either on a USB drive, <\/span>hard drive<\/span><\/a>, paper, or offline computer. It is digitally signed<\/a> there before being sent back to the online network. <\/span><\/p>\n

Therefore, even if an online hacker came across the transaction, they would not be able to access the private key used for it because the private key does not come into contact with a server connected online during the signing process. <\/span><\/p>\n

Despite being more secure, transferring funds to and from a hardware wallet device is slightly more complicated than a hot wallet.<\/span><\/p>\n

Benefits of Hardware Wallets<\/span><\/h3>\n