Bitcoins are virtual currencies among many others that are doing rounds in the cryptocurrency market. Being intangible, their storage is also not tangible hence the use of a commensurate digital wallet.
A digital wallet is a transacting tool used for storing, sending and receiving virtual currency like Bitcoins. No transaction can take place without the use of a wallet.
The type of the wallet depends on the medium used to store it and also whether the information stored is offline (cold wallet) or online (hot wallet).
Types of wallets
There are different types of wallets. The choice of any depends on personal requirements and security sought for.
- Desktop wallet – A desktop wallet is as named, used on the desktop. It is downloaded through an Application. It is as personal as your desktop is and your private key is stored on it as opposed to storage on a server.
- Paper wallet – It is called ‘paper’ because the paper is the medium of holding both the private and public key by means of a QR code.
- Web wallet – This is created by use of an online website server which hosts your public key and private key, and you have to entrust the security of your wallet to a third party.
- Mobile wallet-A mobile wallet is created through an Android or iOS supported mobile device where you download a preferred wallet App and run it on your mobile phone.
- Hardware wallet – A form of offline or cold storage of the Bitcoins. The private key is held offline. Hardware engages the use of devices like USB.
Bitcoin hardware wallet
A Bitcoin hardware wallet is a specialized device that stores your Bitcoin offline. It is made by highly competent and professional manufacturers who have taken the time and technology to in-build into their software some state of the art security features.
The user’s private keys are stored in a secured microcontroller area and can only be transferred out of the device by use of a QR code. Some hardware devices have screens which can be used to generate a seed or a recovery phrase whose details only the user has.
A Bitcoin hardware wallet is the most secure of all wallets, and to date, no theft cases have been reported on the system. Another plus for the Bitcoin hardware wallet is that it is not prone to virus attacks owing to its offline status.
No stored data can be transferred out of the hardware device unless in QR code form and even then, full transactions completed online as the private key which gives the authorization to transact funds, is stored offline. It is also not restricted to Bitcoins only but can also host a number of other common coins.
Bitcoin hardware wallets are purchased off the shelf and come packages in a straightaway usable form. They can be purchased directly from the manufacturer’s online platform or through vendors like Amazon or eBay.
How does a Bitcoin hardware wallet work?
A Bitcoin hardware wallet has two parts: the online or connected part and the offline or disconnected part. Both have different functions to ensure completion of a transaction.
Firstly, the connected part which is the custodian of the public key performs most of the activities that any other wallet would perform except the signing part of the transaction. This is because the authorizing power, which is the private key, is held on the disconnected part of the hardware.
Secondly, depending on whether you want to use the USB or QR code as your offline medium, you can now connect to the device. Let us see how each operates.
The USB method takes the unsigned transaction and signs it. It is returned to the wallet and connected to the blockchain for verification. Once verified it is complete and returned to the USB for storage.
Using the QR code method, the unsigned transaction is joined to the online software which generates a QR code. This QR code is sent to the offline part and scanned, and another QR code is generated offline which signs off the transaction. This is then returned to the online software for inclusion into the blockchain for verification. The transaction is then returned offline and stored.
Thirdly, most hardware wallets come with the provision of a four-digit pin. Put in your pin for improved security of your wallet.
How to create a Bitcoin hardware wallet – Trezor
We shall take one of the top-rated Bitcoin hardware wallets in the market, Trezor, as our example. To create a Trezor wallet, you will take the following steps:-
Note that your package must have a silver seal as proof of authenticity.
- Confirm that the seal has not been broken.
- Next, take your Trezor package and connect your USB extension to your computer.
- Using the Chrome Browser, install a Trezor app extension and follow the guide.
- Fill in your preferred 4 digit PIN that pops up. Keep it in safe custody ensuring to maintain its privacy.
- Now backup your wallet, write down the 24-word recovery phrase or seed and store it safely. It is advisable to copy it or print it and keep it as you would your most important documents. This information is only privy to you so do not share it.
- Go to Mytrezor.com to access the Bitcoin Trezor Client and set it up
- Once done with set up, visit myBitcoinwallet.com on the Menu and select ‘Trezor’ to access your new wallet
That is all you need to do set up your wallet. For more on the Trezor Wallet, read this review.
Other hardware wallet options
There are many in the market, but the top rated 5 besides Trezor are:-
- Ledger Nano S
- Ledger Blue
- Ledger HW.1
- CoolWallet by CoolBitX
In conclusion, hardware wallets have removed the initial fear of insecurity that has haunted all cryptocurrency users. Their functionality is an amazing concept, and they have become the preferred choice for many heavy crypto dealers and those who would want to engage in long-term savings. Bitcoin hardware wallets can be referred to as breakthrough technology in terms of the ease, privacy, and security that they offer.