Which is Safer? Hardware vs Software Wallet
What are Crypto Wallets?
Crypto wallets are software, apps or devices that securely store private and public keys of your cryptocurrencies. The wallets communicate with the blockchain network to perform transactions, sending and receiving digital assets with the authorization of the private keys stored within.
How do cryptocurrency wallets work?
Cryptocurrencies are created and developed with blockchain technology. Unlike paper money and copper coins, they have no physical representation and cannot be handled physically. Records of all crypto transactions are kept on the blockchain network, and crypto wallets are designed to generate and hold specific private and public keys which prove your ownership of the assets on the blockchain network.
Private key is the only and most important information that authorizes any outgoing transaction, therefore it should be kept secret and not share with anyone. If it falls into the hands of malicious minds, the funds and assets associated could be lost forever. Public key is cryptographically calculated and generated by the private key. It allows inquiries and retrieval of transaction data and information on the blockchain network, but doesn not hold any power to move funds or authorize transactions.
Software wallets are crypto wallets that are installed on a computer, smartphones, tablets or cloud services. Personal accounts on crypto exchanges such as Binance, Bittrex, and Coinbase also includes software wallets. These wallets are mostly connected to the internet for fast and up-to-date access, preferable to short-term investors and traders who is constantly moving funds for profit. Although it is extremely convenient, its internet access also makes it vulnerable to hacking and cyber-attacks.
According to Inside Bitcoins, a London based online news source for cryptocurrency, there had been more than $11 billion worth of cryptocurrencies stolen in different hacking incidents over the past nine years, with the biggest heist reported in 2014 with $6.68 bn worth of cryptos vanishing in four different incidents.
Hardware wallets are mighty and safe crypto wallets. They are wallets that allow you to prove that you are the owner of the digital assets, and store your private key offline in a secure chip embedded within a physical hardware. Hardware wallets are more secure than other types of wallets because it ensures that the private key never goes online, hence completely out of reach from potential hacking risks.
When initiating a new hardware wallet, you will be given a set of 24 recovery words, which can be used to recover the same private key in another wallet, software or hardware. It is recommended that you write the 24 recovery words down on a piece of paper, keep it away from water and fire, or use a stainless steel seed back up. Whichever methods you use to record your 24 recovery words, be sure to keep it in a safe place and never share it online or with anyone you don’t trust.
Hardware Wallets allow the storage private keys in a completely offline environment. Cryptocurrencies and other digital assets in a wallet online increase the risk of being stolen. With the recent boom of the crypto market, millions of people are getting into crypto-investment realm under the fear of missing out (FOMO), but do not fully understand the ins and outs of blockchain technology nor how to safeguard their crypto coins and tokens. Many simply keep their assets on exchanges online, unaware of the private and public keys are actually in the hands of the centralized exchanges. Transferring funds to a hardware wallet allows you to own your private key therefore have full control of your crypto and financial freedom.
Why should we choose a Hardware wallet over a Software wallet?
Software and hardware wallets both have their pros and cons. It is in your best interest to choose the right wallet that is most suited to your needs. Software wallets are convenient and mobile, but vulnerable to hacking attacks; hardware wallets are offline and independent, yet could be bulky and require more efforts to access. It is a difficult choice to make, but perhaps similar to what you would normally do when distributing risks with fiat savings and investment, it is recommended to have multiple means of accounts and wallets to manage your digital assets, and a hardware wallet is definitely the safest option for long-term holders and investors.
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