Whether you’re new to crypto or have been around the block before, you’ve probably heard of hardware wallets. But what exactly are they? Why do I need a wallet to store my invisible currency? That’s a good question, and the best way to answer it is to look back on a historic year in cryptocurrency.
It’s no secret that fraud, cyber-attacks, and theft are common in the cryptocurrency industry. BadgerDAO was robbed of approximately $166 million in funds in December of 2021. Days later, thieves stole approximately $208 million from BitMart. To top it all off, the largest crypto heist in history (to date) occurred only in August 2021. It is when Poly Network was hacked and lost a staggering $831 million in investor funds.
Hardware Wallet
Hackers are a major reason why you should take precautionary measures to protect your crypto. Therefore many cryptocurrency investors purchase a hardware wallet.
A hardware wallet is a physical wallet (typically resembling a USB thumb drive) that can stores cryptocurrency offline. By removing your digital currency from the internet, you increase your chances of avoiding cyber-attacks in which someone could steal all of your hard-earned invisible money.
Every hardware wallet includes a public and private key. To understand what a public and private key are, think of them as a bank account.
A public key is analogous to a bank account number. Anyone who has your public key can transfer crypto to you in the same way that you can transfer funds to your bank account. A private key is analogous to the PIN on your debit card. It’s a form of security that prevents unauthorized access to your account, so don’t share your PIN with anyone or leave it lying around.
Do You Need One?
Unfortunately, this thriving industry isn’t as well-regulated as it should be.
To begin, you should know that crypto wallets are typically classified into two types. A “hot wallet” is the first. “Hot” simply indicates that your wallet is online. On the one hand, this means that any cryptocurrency that remains online is vulnerable to cyber-theft. On the other hand, it is the most convenient way to access your cryptocurrency, and you are less likely to misplace it (more on that in a moment). MetaMask and Coinbase Wallet are two popular wallets that you may have heard of.
A “cold wallet” is another type of crypto wallet. It essentially means the inverse of a hot wallet, as you can probably guess. When a wallet is offline, it is “cold,” which means that hackers cannot access it. A cold wallet, which is typically in the form of a physical wallet, can, on the other hand, be misplaced or lost. Fortunately, your PIN should prevent others from accessing it, and there are several backup programs that will allow you to recover your crypto if you get into a jam.
If you want to protect all of your cryptocurrency, hardware wallets (also known as cold wallets) are the most secure option. All you need to do is transfer your cryptocurrencies from the exchange to the hardware wallet. Then you can unplug it and store it in your desk or attach it to your keychain to carry it with you wherever you go.
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