“Not your keys, not your coins.”
― an ancient blockchain proverb
Maintaining control of your private keys can eliminate the risk of getting your funds stolen like the unlucky victims of the aforementioned hacks. And if you want to keep your keys safe, there are few better ways to do it than with a hardware wallet.
What is a crypto wallet?
A crypto wallet is a service that stores your blockchain wallet’s private and public keys. Cryptocurrencies are never stored within the wallet; they always live on the blockchain. The wallet merely stores your private key that opens the lock to your address on the blockchain where your assets actually live.
Types of Crypto Wallets
1. Software wallets
are applications coded to keep your private keys safe whilst being used for storage or spending. They can be further divided into hot and cold wallets. Hot software wallets are used for day-to-day spending or signing of transactions and are vulnerable to breaches. Cold wallets are also software but are not accessible for signing transactions on web 3 applications.
2. Hardware wallets
Hardware wallets are successors of paper wallets. Before hardware, paper wallets enabled us to keep private keys off the internet by writing them on paper. While paper wallets can be great for safely storing cryptocurrency, you must enter your private key somewhere online as soon as you want to spend it, compromising the wallet’s security. However, hardware wallets allow you to transact whilst your private keys are kept safely offline.
What is a hardware wallet?
A hardware wallet is a physical wallet used to store cryptocurrencies securely. It is a form of cold storage and is different from hot wallets like Metamask because it stores the private keys on an external device not connected to the internet.
Why should you use hardware wallets?
A hardware wallet provides many benefits over software wallets.
Keeps your private keys beyond the reach of your computer or internet, even when connected. A private key is the holy grail of a secure wallet, and most crypto thefts are related to compromised private keys.
A highly portable and compatible device where assets on all major blockchains can be stored using a single key. No need to spread your assets on different wallets merely for blockchain compatibility. Plug and play to access your assets on any device.
3. Safe Transactions
With many upcoming services like Radar Relay, directly trading assets on hardware wallets is possible. Ensures the end-to-end integrity of the assets stored on the device. Especially important to use hardware wallets as a hot wallet that trades large amounts.
How to set up a crypto hardware wallet?
Step 1 – Buy the hardware
Be sure to buy your hardware wallet from the manufacturer. There’s a common scam where wallets are preloaded with viruses posed as cheap or second-hand hardware wallets. The two most well-known brands are Ledger and Trezor.
Step 2 – Install the software
Each brand has its own software that’s needed to set up your wallet. Download the software from the official company website and follow the instructions to create your wallet.
For example, once you have your ledger, plug the USB cable into your device and your PC. It should light up and carry you through the prompt to the ledger live app.
Step 3 – Secure the seed phrase
Follow the prompts until you get to the pin. Make sure you write your pin down somewhere you will not forget. Also, be sure to write down your 24-word recovery phrase offline and in several places so that if you lose one, another will be stored elsewhere. Store your recovery phrase offline and somewhere secure. If you lose the recovery phase, you lose access to your wallet and will not be able to recover it.
Step 4 – Create Wallet
Navigate the wallet application to create wallets for each blockchain your assets belong to. For example, to keep Bitcoin and Ethereum, two different wallets will be required. In Ledger, the option to create a wallet can be found in the “Manager” section.
Step 5 – Connect with a hot wallet for spending
If you want to use the assets in your hardware wallets for spending or signing transactions, it can easily be connected with wallets like Metamask.
Problems with hardware wallets
User experience on hardware wallets is often clunky and requires downloading individual wallet software for every cryptocurrency you wish to store on your device. With only one opportunity to write the seed words down correctly—the first time you initialize the device—there is a risk of being left forever unable to import your wallet.
Hardware wallets are costly; even basic ones may cost upwards of $100.
The dangers of counterfeit or compromised devices from 3rd-party sources and lost security keys which render the assets useless.
Security, low cost, and convenient UX—when it comes to hardware wallets, seem to be the hardware trilemma!
How to choose your hardware wallet?
1. User Interface:
UI varies vastly with the company your choose. Trezor has a smart screen like display while Ledger is oldish operated using only two buttons in different ways. Accessing your funds and interacting with the wallet may take time, so choose the most comfortable interface.
2. Currency Support:
If you’re considering investing in a hardware wallet to keep your crypto safe, make sure the one you choose can store your respective coins. Whilst BTC, ETH, and ERC-20 support is standard across most devices on the market today; many other blockchain standard tokens may not be accepted.
This is why you’re buying a hardware wallet, right? Here are some important security-related questions to ask: Are there any known instances of security breaches? Has the device been independently audited? Do you physically confirm transactions on the device? Is it packaged with a special seal to prevent tampering? These are some basic security considerations.
4. Operating System:
Similar to currency support, you’ll want to ensure the wallet you choose is compatible with your device. For example, if you have an iPhone, avoid hardware wallets that only work with Android.
Seek out independent reviews of the devices you’re considering from online sources and, more importantly, users you know. Reviews will warn you of any fundamental or servicing flaws with such wallets.
How to Make a DIY Crypto Hardware Wallet for $0?
Step 1: Grab a Durable Pendrive
Your pendrive is the key to your funds, so make sure to choose one that is durable. The durability of your pendrive is important because if it fails, you will be responsible for not making backups. If you plan to use your hardware wallet regularly, it’s best to use something high-quality.
Step 2: Choose Your Host OS
There are two main options when it comes to choosing your interface:
Option A: Flash a Linux distribution, boot from USB, and install software wallets from a live Linux instance.
Option B: Install software wallets to the pendrive from your host operating system.
For Option A,
a stable Linux distribution such as Fedora or Mint/Ubuntu/Debian is recommended. However, Tails and Qubes are also great options to consider.
Tails is a privacy-focused operating system that runs from a USB drive. It routes all of your internet traffic through the Tor network, making it ideal for those who need extra privacy when using public Wi-Fi. Qubes is a security-focused operating system that isolates individual applications in their own virtual machines. This protects against malware, as even if a malicious app infects one virtual machine, it will not spread to the others.
These options are not only secure, but also offer peace of mind to those who are serious about keeping their crypto assets safe. By using a live Linux instance, you can avoid the security risks associated with running software wallets directly on your host operating system.
For Option B,
Mycelium and Electrum are popular choices for storing only Bitcoin. To store altcoins, you’ll need to install individual apps or closed-source multi-currency wallets like Coinomi or Exodus.
Closed-source software wallets are software programs that are developed and maintained by private companies. The source code is not available for public scrutiny, which can lead to security vulnerabilities that go undetected. With closed-source software, there is no way for the crypto community to verify the code for security issues.
This means that security vulnerabilities can go unnoticed, and if the company behind the wallet goes out of business or is compromised, your funds may be at risk. Moreover, closed-source software is also susceptible to backdoors, as there is no way to verify that the code is free from malicious actors. This is especially concerning when it comes to storing crypto assets, as the stakes are high and a single vulnerability could result in the loss of all of your funds.
Step 3: Unplug Yourself
To secure your funds, it’s crucial to set up your wallet while the live/host operating system is disconnected from the internet. Hardware wallets are widely regarded as the most secure option for storing crypto assets. However, there are those who believe that even hardware wallets can be compromised.
Purists don’t trust hardware wallet manufacturers because they are centralized entities that control access to your funds. These purists believe that the only way to ensure the safety of your assets is to hold the private keys yourself, and that hardware wallet manufacturers represent a centralized point of failure.
If the company behind the hardware wallet is compromised, your funds may be at risk. Additionally, if the company goes out of business, you may not be able to access your funds. There are also concerns about the supply chain, as there have been instances of hardware wallets being tampered with during the manufacturing process. Additionally, there is the issue of firmware updates, as firmware can contain vulnerabilities that can be exploited by malicious actors.
Manufactured hardware wallets are a secure option, but they are not foolproof. Even hardware wallet manufacturers like Ledger and Trezor can be compromised, so it’s important to take necessary measures to secure your funds.
Step 4: Make Backups
Make sure to backup both the wallet directory(s), seed phrase(s), and wallet password(s) in a secure location, such as a locked safe. Keep in mind that any wallet is susceptible to the $5 wrench attack, so it’s important to be prepared. Your seed phrase is the key to your funds, so make sure to store it in a secure location where it won’t be lost or damaged.
Step 5: Be Your Own Bank
As your own bank, it’s important to determine the appropriate measures to secure your funds. If the host operating system is insecure, boot into live Linux. If closed-source software multi-currency wallets are not suitable, use open-source single currency wallets.
The only way to ensure that your crypto assets are safe is to take responsibility for your own security and be proactive in your approach. This includes using secure operating systems, backing up your wallets, and staying informed about the latest security threats. By following these guidelines, you can be your own bank and keep your crypto assets safe.
Bonus Tip: Streamline Your Crypto Payments with Binamite
Agreed, everything right, from choosing which wallet to buy to the cost of buying the wallet, making DIY hardware wallet and using the primitive interface of such wallets, is a tedious task. But more often than not, the rewards will outweigh such inconvenience by ensuring longevity and security of your assets.