Hardware Wallet – Effective Solution For Hacking NFT, DeFi, And Cryptocurrency
More and more sophisticated hacks cause considerable losses to investors. So what is the solution? Are hardware wallets useful in preserving assets for investors?
What is a hardware wallet?
A hardware wallet is a device specifically designed to store private keys securely. They are considered more secure than desktop or smartphone wallets, mainly because they are not connected to the Internet at any given time. These attributes significantly reduce the attack vectors available to malicious parties, which means they cannot remotely tamper with the device.
A good hardware wallet ensures that private keys never leave the device. They are usually kept in a special place in the device that does not allow them to be removed.
Since hardware wallets are always offline, they must be used with another machine. Because of the way they are built, they can be plugged into an infected PC or smartphone without the risk of leaking private keys. From there, they interact with software that allows users to view their balances or make transactions.
After a user creates a transaction, they send it to a hardware wallet (1 in the diagram below). Note that the marketing is incomplete: it needs to be signed with the private key in the device. The user confirms that the amount and address are correct when prompted on the hardware device. At that point, it is signed and sent back to the software (2), which transmits it to the cryptocurrency network (3).
Why should you use a hardware wallet?
Wallets that store private keys on an internet-connected computer or smartphone leave users’ funds vulnerable to various attacks. The malware can detect crypto-related activity on these devices and withdraw users’ funds.
Hardware wallets are like an impregnable vault with a small slot. Users who want to create a transaction that the network will accept push it through the space. All it can do is take transactions and push them out.
Even if someone manages your hardware wallet, you get extra protection in the form of a PIN. Devices will usually reset if the wrong combination is entered within a particular time.
Funds that are not actively used – those that are not spent deposited, loaned, or traded – should be kept in cold storage. Hardware wallets provide a convenient means of achieving this for users, even those with limited technical knowledge.
Hardware wallets must be backed up in loss, theft, or destruction. Upon initialization, users will usually be prompted to write down their seed phrase – a list of words that can be used to withdraw funds on a new device. This allows anyone to spend their money, so it should be considered any value. Users should write these down on paper (or engrave them into metal) and keep them in a private and secure place.
Hardware wallet limitations
Like other forms of storage, hardware wallets come with their trade-offs. Although they are one of the safest means of keeping money, there are still some limitations. They strike a balance between security and usability. Smartphone/software wallets are convenient, while hardware wallets can be challenging to operate (due to having to use two devices actually to send money).
However, hardware wallets are not entirely secure. A physical threat against a user could force them to unlock the wallet for an attacker, but there are other vectors. Skilled malicious parties can exploit the device if they have physical access.
However, to date, there has been no successful hack to derive private keys from a hardware device in a real-world scenario. When vulnerabilities are reported, manufacturers are usually quick to patch them, and that doesn’t mean they can’t happen – researchers have proven attacks against even the most popular wallets.
Supply chain attacks can also effectively undermine the security of hardware wallet devices. These things happen when the bad guys get a wallet before it reaches the user. From there, they can forge it to weaken security and steal funds once the user has deposited.
Another limitation is that hardware wallets involve holding your management. Many see this as an advantage as there is no third-party responsible for managing your funds. But this also means that if anything goes wrong, there’s nothing to claim.
The limitations of hardware wallets do not outweigh their advantages. When storage solutions came out, it wasn’t easy to compare the security of hardware wallets with other methods. There is simply no substitute for cold storage, which eliminates much of the risk from self-custodial custody.
When looking for a hardware wallet, users should educate themselves about their options. Several devices are on the market, each with its features, supported cryptocurrencies and learning curve.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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