In less than eight years, Bitcoin has managed to cement its position as a global currency. Its rising popularity and increasing adoption are due to the features and benefits associated with its decentralized system.
More importantly, the new digital currency is increasingly being seen as a legitimate form of investment and store of value. This is partly due to its legal acceptance across some major jurisdictions around the world like Japan.
Bitcoin, as a digital currency, is subject to many cybersecurity threats. It is essential to understand that the bitcoin network by itself isn’t vulnerable to cyber-attacks, but rather the method of storing bitcoins can be inadequate and result in security breaches.
In this article, we will talk about different types of bitcoin wallets and how to keep your digitized wealth safe and more importantly, off the grid.
Understanding Risk, Security, and Bitcoins
Take cash for instance. Cash can be stored in a bank as well as in a wallet. Cash stored in our bank accounts is entirely safe. Even in the case of a bank robbery, we know that our money would be completely safe.
At the same time, cash can be extremely vulnerable to theft if it’s in our pocket or stashed inside our homes. The same goes for cryptocurrencies or bitcoin. If the reward is worth the risk, it will naturally, attract unscrupulous people who will devise new and ingenious ways to steal our money.
The Digitization of Money
What was initially a question of, “if bitcoin could replace dollar” has undisputedly turned into a matter of when rather than if. It is becoming increasingly evident that all forms of currencies will exist in digital form. Therefore, it is now time we start using more secure types of digital wallets that are not accessible over the internet and thus, less likely to be subject to cyber theft. Such wallets are known as cold-storage wallets.
Just like everyone else, I too was a skeptic when I first heard about bitcoins a few years back. However, after using cryptocurrencies, I have no doubt as to the fate of physical currency. And as a crypto-user, I had to invest time and research into various cyber-security measures to keep my money safe. Hence, the information I will provide in this article is based on my personal experience and knowledge regarding some of the safest bitcoin wallets that are currently available.
Trezor, Ledger Nano S, KeepKey and Bitbox are four of the most widely used hardware bitcoin wallets in 2017. These four wallets offer the most secure way to store bitcoins and other cryptocurrencies. And, their use has become ubiquitous among experienced bitcoin users such as vendors, investors, miners, traders, etc.
Before we look at the specifics associated with each of the wallets, let’s briefly discuss what bitcoin wallets are.
What is a Bitcoin Wallet?
A bitcoin wallet is a digital file that contains a unique key-address. These private-keys are strings of long randomly generated characters that represent money held inside the wallet. It is a form of unique identifier, which allows us to use our money by recording transaction in the blockchain or the shared ledger.
The private-key allows us to access a number of bitcoins associated with the private-key recorded on the shared ledger. This is why our private-key addresses must be protected at all times. You can see how the ledger works in the illustration below.
Even though the blockchain is absolutely impregnable, our personal wallets, however, can be hacked if hackers get access to our private-key addresses. This is why it is important to keep our key-addresses in a separate hardware wallet that simply cannot be hacked due to its inability to directly connect to the internet. It’s the same as keeping our card-card information safe and away from prying eyes.
What Makes an External Bitcoin Wallet Secure
An external bitcoin wallet is the only way to secure bitcoins from the threat of hacking. A hacker can only infiltrate a computer if it is connected to the internet. If our private keys are held in a physical bitcoin wallet, there is simply no way to access it without physically breaking in and stealing the hardware wallet and even that won’t be enough as there are safeguards installed in these hardware wallets to counter the threat of physical theft.
To use bitcoins stored in a hardware wallet, we would have to connect it to a computer and then access it. In the case that a hacker is lucky enough to get access to our computer at the exact same time as our hardware wallet is connected to it, the hacker would still be unable to steal the bitcoins.
The reason being, there is a two-way authentication method that requires the user to physically press a transaction button on the hardware wallet. The dual layer of protection makes it practically impossible for a hardware wallet to be remotely hacked. Some wallets even offer the option to create a password to access the device, which would require the user to use a password after connecting the wallet to a computer.
Lastly, if the hardware wallet is lost or stolen, the owner of the wallet can simply deactivate the device remotely and retrieve the bitcoins with a click of a button. Thus, it is pretty much impossible to for hackers to steal bitcoins from a hardware wallet.
What Are The Most Widely Used Bitcoin Wallets
Bitcoin users have a number of options when it comes to bitcoin wallets. The most secure form of bitcoin wallets are known as external cold-storage wallets. The term, cold, is used to refer a wallet’s inability to directly connect to the internet.
The other type of cold wallet is the paper wallet, which is essentially a piece of paper with the private keys printed on them. The problem with a paper wallet is that it is just as safe as a credit-card. If someone gets their hands on a paper wallet they can access all of the bitcoins stored within it.
Trezor Bitcoin Wallet – The Bitcoin Safe
Trezor Bitcoin Safe, by Satoshi Labs, is a highly secure and trusted bitcoin wallet, which provides a degree of security that simply cannot be replicated using a computer. It is an offline transaction signing device that uses a small screen to visually depict transactional information.
The device has been subject to a security breach in the past. However, recent improvements have made the device virtually impregnable. After previous issues came to light, the Trezor’s development team expanded the device’s internal cryptographic encryption to cover every single aspect of the device.
In the event that the device is stolen or lost, it still wouldn’t be possible to hack into. And the owner of the device would be able to restore the wallet’s data onto another bitcoin wallet through its remote-restore feature.
Moreover, if your computer’s security is already breached, your device would still be secured while connected to the computer. This is possible due to another security feature that involves the generation of a random pin number for every single use, thus, making it impossible to hack into.
Trezor Bitcoin Wallet supports a number of widely used cryptocurrencies such as bitcoin, litecoin, DASH, Zcash Bcash, Ethereum and ERC-20, making it an excellent choice for users of multiple cryptocurrencies. However, the wallet lacks some of the more advanced operational features that expert-use might demand.
Ledger Nano S Cryptocurrency Bitcoin Hardware Wallet
In addition to being considered as one of the most secure hardware wallets for bitcoin, ethereum and other altcoins, it also offers a highly interactive and popular user interface. All transactions made with the device are displayed on its display screen and it requires physical verification for each and every transaction. There are two buttons available on the small device, which allows its users to navigate through the user interface.
Users of Ledger Nano S are required to create a pin code using the device itself. It is important to note that the device does not need to be connected to a computer in order to set-up. Users have to enter the pin code in order to access the device, creating an additional layer of security. However, that is not all. The device also has a secret phrase question and asks its users to enter a specific word from the phrase for further authentication.
As mentioned earlier, the wallet offers one of the most advanced and easy-to-use user interface. The seamless user experience allows for an unparalleled electronic banking experience using cryptocurrencies. Users can also use computer based software to enter transactional information and connect the device only when the transaction has to be made. As of writing of this article, there is no smartphone app for the device. However, it is only a matter of time before one will be made available.
The only drawback we could find about Ledger Nano S involves the user interface for ethereum management. But even that is soon to change with one of the upcoming software updates.
Bitcoin2040 recommends the Ledger Nano S wallet to secure your Bitcoin
KeepKey: The Simple Cryptocurrency Hardware Wallet
KeepKey bitcoin wallet is also one of the most widely used hardware wallets. It offers a number of unique security features that makes it a leading competitor in the cryptocurrency security solutions arena. KeepKey is an incredibly secure device that utilizes an encryption pin code through its touchscreen. It creates a new randomized pin code for every instance of use. Meaning, the pin generator is paired with a hardware wallet that requires a new randomly generated pin code to access the wallet.
The device offers a recovery mechanism in case that the device is lost or stolen. It allows the user to create a 12-word recovery sequence during the initial set-up. If the device is lost, the owner of the device simply has to enter the recovery sequence on a new device and all of the bitcoins would be recovered without any real risk to the access keys.
Bitbox Bitcoin Wallet Device
Bitbox is a recent addition to the range of hardware wallet that is commercially available to cryptocurrency users. Since it is a new entrant into the market, it is also the cheapest option available to users.
The device offers Tor and Tails OS compatibility for the users looking to maintain anonymity along with security. At the same time it also offers compatibility with the two most widely used operating systems, iOS and Android, meaning, even the casual users can use it without worrying about a learning curve.
Since the device is rather new, it is difficult for me to personally go into too many details as I have yet to use the device myself. But if we are to look at the feedback some of its users have given, there is no doubt that it is an extremely simple but highly secure device that will appeal to most of the new bitcoin users. However, since the device doesn’t offer compatibility for multiple cryptocurrencies, it might not be a valid option for altcoin users. Hence, it is an exclusively bitcoin-only hardware wallet. Ethereum is the only non-bitcoin cryptocurrency that can be used with the Bitbox.
The Bitbox also has an edge when it comes to the use of micro-SD card, which acts the backup for the wallet. In the case that the wallet is lost or stolen, the bitcoins can be restored using the backup micro-SD card.
The Final Verdict
For the vast majority of cryptocurrency users, Trezor Bitcoin Wallet and the Ledger Nano S are considered as the most secure hardware bitcoin wallets. As a cryptocurrency user myself, I value nothing more than the security of my data in general and the security of my crypto-based wealth in particular.
As Bitcoin and other cryptocurrencies grow as a major form of global currency and financial asset, it makes sense that virtual and cyber security is taken serious and proactive measures are taken to safeguard our data, as well as our wealth.
Despite the proliferation of security-related products and services, there are still a large number of security breaches that unduly tarnish the reputation of cryptocurrencies. The reason I am inclined to say unduly is due to the fact that, most of the cases involving security breaches are primarily due to poor and inadequate security measures on the part of users and not because of some technical flaw in the cryptocurrency. This is, particularly, why hardware wallets are of such importance, as it even provides security and safety against the most basic human error such as misplacing a wallet.
If you enjoyed this article on bitcoin wallets and found it informative, please consider signing up to my weekly newsletter. It will help you stay up-to-date on everything related to bitcoin and ultimately ensure the safety of your cryptocurrencies.