Hardware wallets are specialized physical devices that safely store private keys and the associated cryptocurrencies of users.
As you might know, blockchain wallets are controlled by private keys. While this concept allows users (for the first time in history) to self-custody their digital wealth, storing these keys safely becomes very important.
Hardware wallets are mini-computers, that are specially designed to keep private keys isolated from online & offline risks, making them one of the best options to store large amounts of cryptocurrencies. Transactions are signed inside the device and sent to a wallet application interface through a secure connection.
That’s why some people with large amounts of cryptocurrency who just want to hold on to their crypto, choose a hardware wallet, put it somewhere safe, and sleep in peace knowing that their device can’t be accessed by a malicious hacker.
However, if you want to use your crypto in everyday life, you can connect your hardware wallet to your computer and use the manufacturer's software interface to initiate secure secure transactions. In short, you can manage your crypto funds without ever private key.
Some hardware wallets are built for advanced users. Look for one that’s easy to set-up and use. Inform yourself about which operating systems your hardware wallets support. Some run in browsers, some on mobile and desktop.
The physical appearance of your hardware wallet also matters. It needs to be robust, discrete (as to not raise attention), small enough to carry around, have a sufficiently large screen to read information from easily etc.
Many would argue that the software underlying a hardware wallet should be open-source to make it auditable by security experts.
All hardware wallets are optimized for security and yet most of them have been exploited (mostly by security experts in labs) in the past. It’s important to understand the different attack vectors and read about what manufacturers do to protect against them.
Once you receive the device, hardware wallets need to be set-up following the manufacturer's instructions. The exact procedure varies from manufacturer to manufacturer but typically looks like this:
1. Download the manufacturer’s software client (e.g mobile or desktop app)
2. Connect your hardware wallet
3. Download the latest firmware onto the hardware wallet
4. Set-up security measures like PIN or passphrase
5. Backup the 12/24 word seed phrase in case you lose your device
6. Start using your hardware wallet