Is Air-Gapped Wallet Really The Ultimate Solution For Crypto Asset Protection?

Air-gapped is a technical term for a device (usually a computer) that does not have any connection to a network or other device. It is a device that is 100% isolated from the outside world. Today, where everything is connected through the Internet, along with the prevalence of hackers and malware, security is always in focus. This is why air-gapped wallets accept air-gapped technology to stay isolated and keep your cryptocurrencies safe.

What is an Air-Gapped Wallet?

An air-gapped wallet is a cryptocurrency wallet designed to stay connected to the Internet and any form of wireless communication. The types of wireless communication that air-gapped wallets disconnect include Bluetooth, wifi, NFC (near-field communication), and sometimes even USB drives.

All in all, air-gapped wallets offer the highest level of security of all crypto wallets. Still, there are trade-offs, as air-gapped wallets can be much less convenient than traditional non-air-gapped desktop, mobile, or hardware wallets. Some wallets can be considered partially air-gapped, as they offer USB connectivity but not Bluetooth, wifi, or NFC connectivity.

How does the Air-Gapped Wallet work?

To facilitate transactions while remaining disconnected from the Internet and communicating wirelessly, air-gapped wallets rely on scannable QR codes or micro-SD cards, which are small memory cards that can disassemble in which transaction data can be stored.

Air-gapped wallets typically use computer-based software applications that support Partially Signed Bitcoin Transactions (PSBT) for Bitcoin or other similar partially signed transactions for various cryptocurrencies.

Having a computer, you should only use it with your dedicated air-gapped device as it is challenging to secure the entire Bitcoin transaction signing pipeline and is vulnerable to multiple vector attacks.

The user creates an “unsigned transaction” in the signing device application.

• This is usually encrypted with a QR code that can be scanned with a hardware wallet.
• In addition, the transaction is recorded and stored as a file that can be read via a microSD card.
• The hardware wallet will then either sign the transaction with its private keys and display the signed transaction to the computer via a QR code or store and write a microSD file.

The computer application can then broadcast the signed transaction to the network.

Types of Air-Gapped Wallets

Air-gapped wallets can come in a variety of different forms, but the following are the most common air-gapped wallets.

Air-gapped hardware wallets

These are specially-built hardware devices designed to store private keys offline. These wallets generally facilitate transactions without exposing the private keys to an online environment or wireless communications.

These devices usually have a digital screen to display transaction information and physical or touch buttons to approve transactions manually.

Air-gapped computers

Users can also dedicate an entire computer to serve as an air-gapped wallet. This computer is usually never connected to the Internet and is used exclusively for storing private keys and signing transactions.

The unsigned transactions are conveyed to air-gapped computers typically via a USB stick, and the signed transactions are transferred out the same way. This approach can be more complex and requires higher technical skills.

Air-gapped smartphones

Similar to air-gapped computers, a smartphone can also be used as an air-gapped wallet. The phones can be factory reset and set up without any connection to the Internet. Wallet software is installed via an SD card or similar methods. This can also be complex and will require advanced technical skills.

Benefits of Air-gapped Wallet

There are several benefits to using an air-gapped wallet to store cryptocurrencies:

• Enhanced Security: As mentioned, the biggest advantage of air-gapped wallets is increased security. Because it is completely offline, it is more difficult for hackers to access the funds stored in the wallet.
• No need to trust third parties: With a zero-distance wallet, you are in complete control of your funds. You don’t have to trust a third-party service to keep your funds safe as they are stored on a device that is not connected to the Internet.
• Greater privacy: A gapless wallet can also provide greater privacy for users. Since the wallet is not connected to the Internet, no one can track the transactions made from the wallet.
• Can be used in areas with poor internet connection : An air-gapped wallet can be useful in areas with poor internet connection, as it allows users to access their funds even without Internet.

Security Gap

Despite the popular idea that air-gapped wallets are significantly more secure than other crypto wallets, several studies have questioned this idea.

This is partly because, in order to transfer cryptocurrencies, the wallet still has to interact with the computer. Air-gapped wallets typically use a software application installed on a computer that supports PSBT (Partially Signed Bitcoin Transactions) for Bitcoin or other partially signed transactions for other cryptocurrencies.

Although there is no physical connection, the wallet, and computer exchange information, and data transferred from an internet-connected computer can contain malicious code even with hardware wallets. This means that hardware wallets will need the ability to carefully examine transactions to avoid the possibility of wallet malware infection entirely.

If the wallet receives malware files and doesn’t detect them, the fact that the wallet is airlocked won’t protect user funds. A hacker could exploit the wallet through a malicious transaction file, a QR code, or information sent via Bluetooth or a USB port.

Using the mining methods above, an attacker can swap co-signers for a multi-signature wallet or even change the receiving address for a single transaction. The software on air-gapped wallets may or may not be sophisticated enough to prevent this, but air-gapped does not provide additional protection in these scenarios.

There are also challenges for users in maintaining good physical protection of air-gapped wallets from theft, damage, or loss. Users should follow best practices and securely back up their keys to protect themselves against such risks. Finally, ensuring the correct and proper use of air-gapped wallets requires a high level of engineering.

Conclusion

Air-gapped wallets provide a high level of security for crypto users, especially those holding significant assets for long periods. They protect against online threats by storing private keys on devices that are never connected to the Internet or any form of wireless communication.

Despite these advantages, air-gapped wallets are only partially secure and require high user responsibility. Security is mainly based on maintaining the integrity of the air gap and ensuring the physical safety of the device. Research also shows that even a wallet with air holes is only sometimes an obstacle for the most dedicated hackers. However, it makes things much more difficult.

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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