Understanding Hardware Wallets

Introduction to Hardware Wallets

A hardware wallet, is a physical device, usually smaller than a mobile phone, that you use to securely store your private keys (think very secure password) offline. You may also hear this referred to as your seed phrase, or hear bitcoiners repeat the mantra "Not your keys. Not your coins".

This simply means if you don't control your private keys, then you are entrusting someone else (like an exchange or custodian) to look after your Bitcoin. They may be trustworthy or they may not.

Even if they are trustworthy, with the threat of hacking and cyber crime, you are taking an unnecessary risk by putting your trust in them when there are better options.

When you control your keys, you control the send transactions.

Let's take a look at the some key considerations when considering if a hardware wallet is right for you.

Do I need a Hardware Wallet?

There is no one-size-fits-all answer to this question. Regardless of how much Bitcoin you have, the question you should really ask yourself is, am I prepared to lose it? And further, if it becomes 10x more valuable (as Bitcoin has a habit of doing) would I be prepared to lose that!

I find a good way to think about it, is to put it in the context of cash in your pocket. How much cash are you willing to carry in your pocket, before you start to feel uncomfortable?

Everyone's answer to this question is different. Your answer is the right answer.

Ok, so I need a Hardware Wallet, but which ones can I trust?

Several manufacturers dominate the hardware wallet market, each offering unique features and security protocols. Leading brands include Coldcard, Trezor, Jade, BitBox, and Ledger. Each has its strengths and weaknesses, catering to a variety of users with specific needs and expertise levels.

Are you looking for the most secure, because that is likely to be the most technical. Be honest with yourself about your technical ability. Are you ready to use power only cords, SD cards, rolling your own seed phrase and managing QR codes? Do you need secure chips and additional passphrase protection or, are you looking for one with an easy user interface and are prepared to sacrifice security?

You'll start to realise that everything in Bitcoin has trade-offs. In this case it's convenience and usability versus security and privacy.

You may read reviews that tell you that you need a device that is compatible with multiple cryptocurrencies. You don't! Even before you look at Hardware Wallets you should first understand what the real innovation in money is. When Bitcoin was given to the world in 2009, what we were given was digital scarcity. Much like the wheel or electricity, this is a one-time thing. The wheel was not invented twice! Focus on accumulating and securing Bitcoin before you even look at anything else.

Finally, assess the manufacturer’s reputation and customer support. Bitcoiners will be quite happy to give you their opinion! Regardless, whatever device you decide to buy, I'd recommend buying it direct from the manufacturer (rather than a 3rd party reseller), and if privacy is important to you, consider having it delivered to a PO box or your work, rather than your home. No one needs to know you own Bitcoin unless you decide to tell them.

Conclusion

Keeping your Bitcoin on ANY exchange is a bad idea. Taking it in to your own custody using a hardware wallet is preferrable. However, all hardware wallets are not equal and what works for someone else might not work for you.

Using 1 hardware wallet (called single-sig) is good - think of a safe with 1 key - but using 3 keys is better (multi-sig), where you require at least 2 of the 3 keys to move your Bitcoin. I'll focus on that in the next blog.

Regardless of what you decide, realise that Bitcoin security is important, and will only become more important as the price goes up. Learning good practice now will serve you and your family in the future.

With all clients, I ask them to consider 1 thing. What is the Single-Point-of-Failure in your Bitcoin setup, and make sure you also understand that the answer might be You.

If you'd like to schedule a free consult to work out what the logical next steps are for you, we'd be delighted to hear from you.