What is a hardware wallet?
Is it like a thumbdrive? Need to pay money ah. Useful or not.
You may have heard of that your funds on crypto are not safe unless it is your own.
As the saying goes - not your keys, not your coins.
So what exactly are wallets and specifically, why should you get a hardware wallet?
In the decentralized world of crypto, there are no banks or financial institutions (after all, it is meant to be decentralized). What this means for you as a user is that you have full self-custody of your own funds.
If your funds go missing, get hacked (stolen), or if you transferred coins to the wrong address, no one can help you.
In my opinion, this is a small price to pay for many benefits of decentralization; including:
not having many unnecessary middle men take fees along the way (i.e. cost savings in the long run),
no longer having to deal with the inefficiencies of traditional finance (TradFi) such as waiting 2 days for money transfers
being able to transact any time of the day and week (yes, including weekends when banks are typically closed!)
If you plan to hold for the long term, After you have purchased your funds on a centralized exchange such as Binance.com, the next step would be to transfer your coins/tokens into your own wallet so that no one else would be able to access those funds but you.
Why can’t I leave it on the exchange?
Well, exchanges, after all, are centralized bodies and they too fall victim to the woes of other centralized bodies (such as loss of funds from hacks, key team members fleeing with funds, or even temporary freezing of coin withdrawals).
The name of the game is control. To prevent the above from happening to you, you need to own your own wallet.
What are wallets?
Wallets are just a means for you to store your cryptocurrency digital assets.
A wallet will typically have 2 addresses.
1. A public key which you can freely share with anyone so that you may receive funds (think of this like your bank account number
2. A private key which you should never share with anyone (think of this as your internet banking login and password)
Wa, why so complicated one?
After all, it is called Cryptocurrencies for a reason. There is cryptography (read: secret spy stuff) involved and this technology allows for the whole decentralisation in the first place.
Do note that nothing is ever stored on your wallet. Your wallet only stores the information of where your funds may be located on the blockchain.
What kind of wallets are there
There are 2 main types of wallets.
Software wallets (like Metamask and Trustwallet)
Hardware wallets (Nano Ledger and Safepal)
Software wallets are typically free while hardware wallets typically cost US$80.
Why should I pay when I can get a wallet for free?
Well, you pay for what you get.
Whilst there is fundamentally nothing wrong with a software wallet, because the private key to the wallet resides on same device that you are interacting with the internet world from, there is a chance your private key may be compromised.
This can happen in many ways including phishing attacks where you may be none the wiser. After all, a bank employee in Singapore did fall victim to a social engineering attack and shared details of 1,100 customers.
*Still think you’re clever enough to outsmart the scammers?*
What’s worse, you may even foolishly store the private keys on the cloud and create another vector of attack for hackers.
**Enter hardware wallets**
Hardware wallets allow you to sign for transactions without ever exposing your private key. This helps solve for the issues I listed above.
Popular hardware wallets include Ledger Nano S (Desktop / Laptop only) and Safepal S1 (Mobile only).
In my opinion, the Ledger Nano S works great for most use cases although there is a slight hindrance that it can only store up to 3 apps at any point of time. This shortcoming is fine if you intend to hodl a few coins. If you’d like to hold more, simply uninstall the app to free up space so you may install another. And no, your assets won’t be lost if you delete the app on the Ledger Nano S.
The Safepal S1, however, is great if you intend to perform more DeFi-related transactions on the ETH, BSC, and TRX network. In addition, it’s able to function completely on your mobile (major plus for convenience!)
One key note: Never ever store your 24 word seed phrase online, and never show them to anyone.
Do note that you should only ever buy your hardware wallets from the official store or their authorized resellers. Never ever buy your hardware wallet from a third-party. You will never know if they have tampered with the hardware wallet.
Seed Phrase Storage and Protection
You can either write your seed phrase on a piece of paper (and please laminate it) or purchase a steel seed container that is fire-proof, waterproof, stupidity-proof etc. There are many products out there, but the ones that top my list are Cryptosteel (US$110) and Cobo Tablet Plus (US$60). Yes, the price is mighty expensive. But if your assets are of a certain size, think of this as an insurance. How much are you willing to pay for a good night’s sleep?
If you are willing to ape into a shitcoin with $500, what is $150 to protect your entire crypto investment?
But yes, if you are only ever going to invest a couple of hundred bucks, then don’t get these protection instruments. My personal take is that getting a hardware wallet only makes sense if the cost is less than 2% of your overall investment.