Hardware Crypto Wallets

Hardware crypto wallets

Source: https://www.dakript.com/strojne-denarnice

Hardware wal lets (“HWW”, “cold wallets”) are devices that offer the most secure and user-friendly way to store digital assets.
Digital assets are cryptocurrencies, tokens and virtual collectibles, or “collectibles”. Non-negotiable tokens (NFTs). In this post, we will focus on Bitcoin.

A very brief history

In the past, when wallets were just files on computers (e.g. wallet.dat), we saw digital assets being lost and stolen. Because this annoyed people, in 2012 Marek and Pavol in the Czech Republic came up with an electronic device that would better protect first Bitcoin and later other cryptocurrencies.
Machine wallets were created to increase the cost of stealing Bitcoin while making it easy to use.

What is a hardware wallet?

Hardware wallets store Bitcoin by creating a mathematical “secret” independent of the operating systems of our computers or phones. These “secrets” or. private key, never disclose it to any device with which they communicate in any way. The private key corresponds to one public key from which we generate the addresses to which we receive Bitcoin. When you want to send it, the device uses these two keys to create a signature. As this is the most important operation of hardware wallets, they can also be called signature devices.

Machine wallets are the physical link between humans and digital assets.

Why hardware wallets and not exchanges or mobile wallets?

Sovereign use of funds

Coins on exchanges are not insured, as is the case in the banking world, to a limited extent, for cash deposits. There are many known cases of crypto exchanges collapsing and funds being stolen from exchanges and online wallets. Just as the money in a bank account is not owned by us, but managed by the bank on our behalf, the coins on crypto exchanges or online wallets are not entirely ours.

In recent years, we have seen that even governments in developed and theoretically democratic countries (Canada, the US, EU countries, Russia) can seize or block assets on stock exchanges, banks or investment funds. Users are simply left without the possibility to dispose of them.

Therefore, when managing digital assets, especially bitcoin, the saying “Not your keys, not your coins.”, or perhaps “No keys, no coins”, should be understood as “The coins are yours as long as you manage the keys to them”.

If we want to actually manage our coins, exchanges and crypto banks are not the answer.

Machine wallets

and a little know-how are the most convenient solution for sovereignly managing your own funds.

Online, mobile or. “hot” wallets

Mobile wallets (or other online wallets) do not prevent the risk of hacking via operating systems or the collapse of the wallet provider. Wallets (mobile or online) that display private keys on the screen of a phone or computer cannot therefore be considered trustworthy.
Hardware wallets are dedicated devices that serve only one purpose – to isolate private digital keys from all other devices and operating systems, and are therefore much more secure than online wallets.

What do hardware wallets offer us?

Hardware wallets are devices that do two things for us:
The first is to securely create and store private keys that give us access to cryptocurrencies.
The second is to securely sign transactions on the device’s own, secure screen.

These tasks are simple, which is why these devices can be so minimalistic from a hardware and software point of view. Computers or phones that host large operating systems and applications are much less secure because, despite all the protection they can offer, they are at a higher risk of being hacked.
There are other ways of securing private keys that are either too expensive, complex or not secure enough, and thus inappropriate for most users.

To make it easier to manage digital assets on a hardware wallet, we can use apps on your computer or phone, as long as these apps “talk” to the hardware wallet and use it to store private keys and sign transactions. Such applications may be bundled with the hardware wallet by the manufacturer or may be independently developed and supported by hardware wallets.

What features should a hardware wallet have?

We want safety and ease of handling. The ideal is a friendly interface where we always know what we are doing and bulletproof security. Unfortunately, there is no such product, but there are some good approximations, which are being improved by manufacturers.

We recommend opting for a wallet that has/allows:

  • Large enough and easy to read screen

The bigger it is, the better and clearer we can see what we are signing. Readability is also related to the resolution and contrast of the screen.
Wallets without screens are not considered here and are strongly discouraged.

  • Open source

The software code and the list of hardware components used should be publicly available and thus verifiable by the public. Because the code on wallets is relatively small, it is usually scanned and attacked several times, and therefore more vulnerabilities are fixed sooner than in “closed-source” solutions. Open-source solution providers are more likely to offer a bounty for fixing bugs, i.e. to encourage hackers to “break” their code. It can be expected that such equipment is less likely to contain malicious software code that could allow the manufacturer to seize users’ funds. We are less keen on certified solutions, where we have to trust someone who will test and certify the manufacturer, usually for money(!).

  • Safety features

A secure circuit can be a chip that is designed to protect data at the hardware level. It’s fine without it, but it can make your device safer. We also want to use encrypted communication between the wallet and the computer, regardless of the type of connection (USB, Bluetooth, NFC, QR codes, mSD, etc.).

  • Privacy

We want the wallet to be easily connected to its own node or to the node (full-node) of a provider we trust more than the manufacturer. A Bitcoin node is relatively easy to set up at home, but this is not the case for all alternative blockchains. It’s a good idea for your wallet to support connectivity over more secure networks, such as. Tor.

  • Mobility

We want to use it on more operating systems; on computers and on mobile phones.

  • Making a backup copy, including analogue

All hardware wallets are electronic devices. Backing up to microSD cards is fast and accurate. But they are also electronic devices, or. microcomputers with a limited lifetime. Therefore, we expect that the hardware wallet will also allow the production of analogue backup copies that can survive moisture or damage on a suitable medium (e.g. metal). liquids, strong shocks, high heat, acids…

  • Compatibility between different manufacturers

We expect the backup in the form of words, phrases, QR codes, etc. to be compatible between wallets from different manufacturers. Some wallet manufacturers, both hardware and software or mobile, adhere to certain recommendations (such as BIP or SLIP), others do not.

Compatibility allows us to easily change wallet (and thus manufacturer) without losing funds. We don’t want to one day find a wallet in a safe whose manufacturer has disappeared and we can no longer use it.

  • Friendly interface

The programming interface must be simple and easy to understand, which is extremely difficult today as people still have relatively little knowledge about bitcoin and other cryptocurrencies. The more understandable the interface is to the less-literate user, the better.

  • Ease of use

“Complexity is the enemy of security.” We want a wallet that is so easy to use that it prevents steps that could lead to loss of funds. This applies to the software and also to the physical ergonomics of the device.

Localisation contributes greatly to understanding. translation of interfaces into the user’s language.

  • Support for different coins, platforms

This is often the most sought-after feature, although perhaps not so important in the rapidly evolving crypto asset ecosystem.

Bitcoin? Altcoin? NFT? DeFi? Web3? What does supporting all possible standards and emerging forms of digital assets mean for the manufacturer, the security of the device and the user?
Is it more secure to have a device that only protects Bitcoin well, or one that offers everything “alive and (soon) dead”?
Time will tell, but let’s see what is available on the market.

  • More advanced features

Multisig, Anti-Klepto oz. Anti-Exfil, PSBT, Air-gap, Anti-phishing Words are the names of more advanced functions or features of some hardware wallets. Some are very useful, some are useful, and some just make you feel good.

Market overview

The market for hardware wallets is on the rise. We have identified over 70 manufacturers and more than 110 models of hardware wallets that have reached at least a prototype product. Far fewer are for sale and even fewer are tested and used every day. The first ones were made in Europe (Trezor, 2013) and most of the recommended ones are still produced here.

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