How does a hardware Bitcoin wallet work

Find out what a hardware Bitcoin wallet is, and what are its advantages and disadvantages compared to software

When a user buys or mines Bitcoin , he can store it in a digital wallet , which is also used to carry out financial transactions. There are two types: software , in the form of an application (most popular), and hardware , which is more secure.

What is a Bitcoin Hardware Wallet?

A hardware wallet is a special type of digital Bitcoin wallet that, like the software version, available in desktop or mobile apps, is used to store the Bitcoins you mine or buy.

The crucial difference for a software portfolio, is that the hardware one is a physical solution , similar to a pendrive or a digital token . It combines elements of the software portfolio, so it needs to be connected at the time of a financial transaction.

How does a hardware Bitcoin wallet work

How does a Bitcoin hardware wallet work?

Ledger Nano S / Bitcoin wallet
Ledger Nano S, an example of Bitcoin hardware wallet

A hardware wallet stores its Bitcoin cryptographic keys in an offline environment , so they never leave the external device.

They work in conjunction with a software portfolio, on a computer or mobile phone. This is the one that will make the transactions with Bitcoins, but not sign them, as the keys are in the hardware wallet.

The software wallet then redirects the transaction so that the hardware wallet signs and validates the transaction. Once this is done, it sends back the signed transaction to the software portfolio, which completes the transaction. This way, the hardware wallet is better protected against attacks and malware that try to steal your Bitcoins.

In general terms, a hardware portfolio:

Stores cryptographic keys in a protected microcontroller , which does not transmit open data;
It is practically (but not totally) immune to malware that attacks Bitcoin software wallets, on computers or cell phones;
They can even be used with supposedly infected devices.
What are the most secure Bitcoin hardware wallets?
Trezor One / Bitcoin wallet
Trezor One, another example of a hardware portfolio
Hardware wallets are similar to flash drives or tokens, and the most secure ones bring a screen, which displays transaction information to the user.

How does a hardware Bitcoin wallet work

The safest and most popular models are:

Ledger Nano S : one of the most popular and reasonably affordable, costing R$ 229. It has a series of security layers and is quite small, being easy to transport;
Trezor One : it was the first hardware portfolio to be launched in the market in 2014. It costs the equivalent of R$ 310 (euro quotation – 02/13/2019), and can store all your operations with great security.

Are Bitcoin hardware wallets 100% secure?

No , and by the way, it’s always good to keep in mind: no system is 100% secure . While hacking a hardware wallet is far from easy, security experts have already demonstrated that it is possible to do so . However, the attacker needs to have physical access to the gadget, including selling tampered versions.

Therefore, the user must take the following precautions:

Only buy hardware wallets from official vendors, or from trusted stores;
Upon receipt, check that there are no signs of tampering.
If you suspect, open the wallet and check that there are no extra elements soldered to the plate. If so, don’t use it;
Keep your hardware wallet in a safe place and don’t let people you don’t trust use it;
Use encryption software on your computer or cell phone to protect the software that communicates with the hardware portfolio.

How does a hardware Bitcoin wallet work

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