How do hardware wallets work?

Posted on August 19, 2020 in Articles, Digital Assets 101, Opinions
How do hardware wallets work?
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Hardware wallets are a type of Bitcoin wallet that stores your private keys and cryptocurrencies in secure hardware. They are one of the safest forms of digital wallets available. You can send and receive your cryptocurrencies from your hardware wallet.

If you are new to cryptocurrency, you may wonder how hardware wallets work? This article will explain how it works, its benefits, and more.

How Do Hardware Wallets Work?

The hardware wallets merely store your private keys (a very large random number). However, the cryptocurrencies are stored on the blockchain, which can be accessed by the hardware wallet. Your private key helps authenticate yourself on the blockchain and enables you to access your coins.

The primary function of a hardware wallet is to store your private keys away from the internet. They are safe from hackers as these wallets are not connected to the internet.

Another function of hardware wallets is that they let you sign and confirm transactions on the blockchain. The private key is like a digital signature that signs off your blockchain transaction. It is impossible to forge your private key, as it is unique with an array of random characters and numbers.

The private keys stored on the hardware are PIN protected with an optional passphrase. So even if you do end up losing your hardware wallet, no one can access it. Since it has no exposure to the internet, these wallets are often referred to as cold storage. 

In case you lose your hardware wallet, you can make use of the seed phrase to re-generate your private key. Using this phrase, you can move the private key to a different hardware wallet. Just make sure once your seed is generated for the first time you write it down and store it in a safe place.

You can plug hardware wallets into the system and unlock it with the pin. You can then create a transaction and verify it with your keys on the wallet.

Some hardware wallets have a small screen that makes it easier to access and interact with the wallet better.

The Benefits of a Hardware Wallet

There are various benefits of using a hardware wallet including higher security, multiple asset storage and convenience.

Highly Secure

Crypto users prefer hardware wallets over software wallets due to the increased security that it provides. Your crypto assets will be safe even if the computer you use isn’t secure. Hardware wallets offer an extra layer of protection against various cyber-attacks and malware intrusions on any personal computer.

Multiple Cryptocurrencies, One Wallet

One hardware wallet can work with multiple blockchains at the same time. Your hardware wallets can manage Bitcoin along with Ethereum and more. 

A single recovery phrase can back up all your crypto assets. 


Hardware wallets are quite convenient. They are small plug-in devices that let you safely access your crypto assets from anywhere. They also allow you to log in to many dApps without having to register for a new account every time.

Hardware wallets also enable you to log in to Google and Facebook.


You can trade directly from your hardware wallet with the help of various trading platforms. This is one of the safest ways to trade your cryptocurrencies. The assets trade directly from your wallets rather than being deposited to an exchange wallet first.

You save a lot of time by skipping the deposit delay as well as avoid fees from withdrawal limits.

Is a Hardware Wallet Necessary?

If you are a crypto enthusiast and looking to purchase a few coins for cold storage, then a hardware wallet might be the best for you.

Since they store the private keys on hardware away from the internet or internet connected devices, your crypto assets are safe from cyber-attacks. The only way you lose your hardware wallet is if you misplace it or if it gets stolen. Even then, you can recover your private key using the seed phrase.

Hardware wallets are also quite convenient. They store many coins and tokens including bitcoin, litecoin and erc 20 tokens. You can just plug in the device to access your crypto assets safely or log in to dApps with ease. This plug-in feature also allows you to trade directly on exchanges without having to deposit or withdraw funds from it.

However, despite all these benefits, the hardware wallet is still prone to a few security risks. Malware can swap the recipient’s Bitcoin address so that you may end up sending Bitcoin to the wrong address.

Hardware wallets are secure, but any vulnerabilities in the software, firmware, or even at the hardware level can allow attackers to break into the wallet unauthorised. Any faults during the production will also lead to holes in the final product.

There are chances of your hardware wallet being tampered replaced with identical fraudulent products.

The Best Crypto Hardware Wallet

There are numerous hardware wallets on the market. The main ones include Trezor and Ledger which makes a device called the Ledger Nano. The best crypto hardware wallet by far is the Trezor hardware wallet. They launched their first Trezor model n 2013. It’s updated version the Trezor T was launched in 2018.

The Trezor wallet is secured with a 24-word seed generated from the RNG on the device and the computer. It generates the seed offline, keeping it safe and secure.

You can set up the Trezor with a PIN that is required for spending. You can also add a passphrase to the 24-word seed. This passphrase helps you recover the wallet and offers more security.

The screen helps you confirm that you are sending to the intended beneficiary, but it does not help prevent cyber attacks. You need to physically press the button on the device to confirm an outgoing transaction.

Trezor offers high privacy to its customers as Satoshi Labs cannot track the devices because they contain no serial number. The Trezor One costs $59 whereas the Trezor T costs $159.

With cryptocurrencies becoming more popular and widely accepted by the general public, digital wallets will become more sophisticated and secure. Hardware wallets are not secure enough. They need to be free from any vulnerabilities and flaws that could compromise the crypto assets.

If you are new to cryptocurrencies, a hardware wallet is one of the best options to store your crypto assets safely. Make sure you purchase a device from an authentic manufacturer who can be trustworthy and has a good reputation, you want to avoid purchasing from an unknown third party.