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An Introduction to Hardware Wallets

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There are various measures that can be taken in order to secure bitcoins such as implementing multisig, two-factor authentication, encrypted backups, and cold storage.

One innovative and highly secure approach to securing bitcoins is using hardware wallets.

What is a bitcoin hardware wallet?

A bitcoin hardware wallet is a dedicated device which stores the private key to a bitcoin address. Like a paper wallet, a hardware wallet is a form of cold storage: it is not connected to the internet. Thus is practically impossible for anyone to hack the private key, which makes hardware wallets highly secure. The process of signing the transaction takes place solely inside the hardware wallet itself, and the private key never leaves the device.

Benefits of hardware wallets:

There are quite a few benefits of hardware wallets which make them better than the usual online wallets or software clients.

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  1. In general, hardware wallets do not reveal private keys which makes them extremely secure since the whole point of securing your wallet is making sure that your private key is safe. A hardware wallet ensures that the signing of a transaction is done inside the device itself which is why it is practically impossible to steal the private key.
  1. Hardware wallets are more user friendly than paper wallets. A paper wallet is secure as long as it is generated on an offline, clean operating system (ie., Ubuntu, LiveCD). This is an excellent way to store bitcoin over the long term, provided you have various security measures in place. However, if you want to occasionally spend bitcoins from your paper wallet, you will essentially be exposing the private key by connecting to the Internet to execute transactions.Then you need to start over and make a fresh paper wallet in order to secure your funds, which can prove consuming if you have to run the paper wallet generator locally on a secure operating system.

There are quite a few hardware wallets in the market, such as the Trezor developed by SatoshiLabs, Case developed by CryptoLabs (now Case), the Ledger HW1 and the Ledger Nano to name a few.