Cryptocurrency is booming – and while 2017 still saw a majority of people in the dark about this next generation of digital money, 2018 is looking like the year that crypto will become more mainstream.
However, increases in popularity also see increases in security risk – as more people dip their toe in the water, they present themselves as potential hacking or fraud victims – and the stakes can be high.
If you want to virtually eliminate any threat to your digital currency, you’re going to need a hardware wallet.
I’ll explain how cryptocurrency wallets work, what makes hardware wallets different, some important buying tips – and run you through some of the best hardware wallets I’ve used that I see becoming even more popular in 2018.
What is a cryptocurrency wallet?
Cryptocurrency isn’t minted or created in the way government regulated fiat currency is.
Instead, it’s series of cryptographic codes that are generated by its underpinning programming system – so, in the case of Bitcoin and other popular cryptocurrencies, it’s the blockchain technology and process that creates the valuable code.
Unlike fiat currencies that can be withdrawn and put into your pocket – cryptocurrencies rely on having an electronic wallet in which their code is stored – and these wallets perform a couple of significant functions.
The first significant function is that of security. A wallet is a secure piece of software that does not allow public access to the code it either holds or generates to move cryptocurrency on. As such, your money is safe, with just you knowing the private cryptographic key that allows that money to be sent or withdrawn.
If you were to hold 1 Bitcoin you’d be sitting on a significant chunk of value – which as a whole could be pretty unhelpful – depending on what you want to do with it. Lets say you want to buy a handful of new alternative cryptocurrency coins that are just a tiny fraction of Bitcoin’s value – you’re going to need to break that Bitcoin down.
A wallet helps you do this. It’s far more common for transactions to involve 0.01 Bitcoin than it is for them to involve full coins, so should you wish to withdrawn a proportion of a coin, a wallet will create the unique private key needed for you to do so.
Different kinds of Cryptocurrency wallets
Aside from hardware wallets, you tend to find 3 main types:
- Online wallets
- Software wallets
- Paper wallets
An online wallet is provided by a website or crypto exchange that keeps your currency behind their own security. A software wallet is a program that’s downloaded to your computer or phone and holds your currency within – and a paper wallet is a way of committing your code to paper – a printed voucher of sorts that removes your cryptocurrency from any online storage and commits it to physical paper.
Each of the wallet solutions outlined above have inherent security issues that, at this stage at least, seem relatively unavoidable.
- Online wallets rely on your code being secure with a third party. If access to their site isn’t possible – you don’t have access to your money, and, if their security is compromised, you could lose your money altogether.
- Software wallets are generally only as good as the computer you install them on – so any malware that can access the software, or log your keyboard inputs, could have access to the same information you store.
- Paper wallets are ‘cold’ offline storage – so if they’re lost, damaged or stolen, then so is the code that they hold.
What makes Cryptocurrency hardware wallets different?
Hardware wallets are considered to embody the convenience of an online or software wallet – but mix in the ‘cold’, offline security that you’d normally associate with a paper wallet.
Most hardware wallets look like a small USB drive – although they’re significantly more secure!
They do not rely on syncing with a PC to work – they come equipped with their own sophisticated wallet and security software – yet they can be backed up in an exceptionally secure manner in the case of loss, theft or destruction.
When you start out in cryptocurrency you might feel safe and secure keeping your money with an online wallet provider – but be warned, if you’re planning on holding your coins for a while, or you plan on growing your portfolio, then considering a more secure options is fast becoming a must – especially given the number of online resources that face traffic and security problems.
What’s out there? And what’s good?
Since cryptocurrency is still fairly obscure to most people, finding a wallet and a series of reviews can be quite tricky – with most hardware wallets scraping just a few consumer reviews when you check on major shopping sites.
Part of the issue is the number that are out there – low demand means low supply, especially for a piece of equipment with very high stakes.
I’ve bought, used and currently store a variety of cryptocurrencies in 4 types of hardware wallet – the ones that I’ve picked out as being the best and more secure on the market today. Let me tell you a bit about each.
Ledger Nano S
At a glance you could be forgiven for thinking the Ledger Nano S is a high-end USB drive – though when you rotate it open the screen gives it away as being a most sophisticated piece of equipment.
Priced at around £85, it’s less costly than some of the others in this list and widely regarded as exceptional value for money in the crypto community.
It took me just a few minutes to set the Nano S up – a process that includes selecting a 4 digit PIN to protect access. You’re also granted a 24 character recovery phrase that you can record at the point of setup – allowing you recover the wallet’s contents should it be stolen, destroyed or wiped owing to too many incorrect PIN attempts.
The screen on the Nano S represents a significant and important security feature – letting information, including private keys and other sensitive information to be displayed without relying on another (and often less secure) device.
An app is also required to maximise the function of the Nano S – but again, ties into information that’s displayed on the device screen to ensure safety. What’s more, transactions instructed through the app require simultaneous pressing of both physical buttons on the device, meaning hackers will fall short without access to the physical unit.
In my opinion, all of the Nano’s features add up to an exceptional device. Also, the Ledger company has an excellent reputation and, at the time of going to press, it’s almost impossible to find anything close to a poor user review relating to their products or service. The only downside is likely to be the amount of time you’ve got to wait for your product to ship – with waits of 2-3 months not uncommon – owing to sheer popularity.
- Time it takes to get your hands on one!
TREZOR are the original hardware wallet manufacturer – and while their product started geared toward Bitcoin, compatibility has grown as more and more altcoins come to the market.
The TREZOR weighs in as being slightly more expensive than the Nano S – at around £110, although high demand again means that price can go up if you want the company to ship your wallet more quickly – with a month plus wait if you opt for low-cost shipping.
Since TREZOR was in the marketplace first, it’s highly thought of – and carries very similar functions to the Ledger Nano S, including:
- PIN protection
- Screen that ensures security when plugged into PC
- Dual physical buttons required to confirm transactions
- Recovery key for wallet backups
While TREZOR’s time in the marketplace is unparalleled, they did recently have to deal with a security issue that could have potentially left user’s coins exposed. That said, the potential vulnerability was brought to the attention of the crypto community by TREZOR themselves – and patched quickly.
While there was an exploit theoretically – reports of users being impacted seem extremely thin on the ground, keeping the TREZOR as one of the top hardware wallet picks for 2018.
- Time in market
- Solid design
- High security
- Slightly more costly than other wallets
The KeepKey is less popular in crypto communities then the Nano S and the TREZOR – but that’s not to say it’s not an excellent wallet, instead that it simply falls outside the two most established and recognised names in the crypto market.
If you’re looking for something with an impressive visual impact, the KeepKey knocks the opposition out of the park – with a stunning simple design and seamless screen that displays secure information on the front of the device.
That said, beauty comes at the cost of size – and you’d probably be more comfortable with both a TREZOR and a Nano S in your pocket – rather than a KeepKay, which isn’t far off the size of a smaller iPhone model.
However, carrying a similar set of features to both the Nano S and the TREZOR, the KeepKey isn’t totally out of the marketplace just because of size. The wallet supports a wide variety of altcoins and the cost is similar to the TREZOR at around £100.
Simply because of the size and the less established nature of the KeepKey company, their wallet isn’t going to knock either of the two biggest hardware wallet names from the podium – but it could be one to watch, especially if KeepKey look to build on their design and support into 2018.
- Super sleek design
- Good level of security
- Bulky design
- Not as established as main competitors
You’re unlikely to see the CoolWallet reviewed in many places – again, the company’s reputation isn’t as established as that of TREZOR or Ledger, so people tend to plump for the tried and tested solutions.
That attitude may have people missing out on a great, secure and innovative product with the CoolWallet – a very thin credit card shaped hardware wallet that arguably looks smarter and is more portable than any other wallet on this list – again tipping the scales at around £100.
To begin with, the cool wallet connects via Bluetooth – meaning devices that don’t have a USB port as standard (iPhones for example) can still sync with the device. Given the thickness of the card (it really is credit card like) it’s incredible to think that there’s a screen and clickable physical button, but there is – and it keeps the CoolWallet’s security tech up there with the rest of the wallet solutions I’ve listed here.
Set up of the CoolWallet takes a little longer than the other wallets here, but given this is a one-off process with your financial security at stake, few users are likely to mind.
With design and security on the ‘pros’ list for the CoolWallet, it’s likely to only be the company’s limit history and reputation that’s going to hold it back – but that aside, the CoolWallet is a great looking device that’s highly likely to win some admirers in 2018.
- Awesome and robust design
- Very portable
- Limit company reputation
What should you be aware of when buying a Cryptocurrency Hardware Wallet?
Buying a hardware wallet’s easy right? A quick search on Amazon, eBay or Google will find you a cheap option?
While the above is somewhat true – you should be extremely careful where you buy your hardware wallet from – and buying directly from manufacturers is almost universally considered the right way to go.
The reason most people opt to buy direct from hardware wallet manufacturers relates to security.
Although cases of it occurring are at this stage unconfirmed, bogus hardware wallets could be loaded with software that transmits your currency straight out of your wallet and to some unscrupulous fraudster’s wallet instead.
The reality is, even a cheap Ledger Nano S or a TREZOR is likely to only save you a small amount in the greater scheme of things. If you want to be certain that your money is 100% safe, then buying directly from the wallet manufacturer is the way to keep you cryptocurrency safe.
Put simply, if you’re taking cryptocurrency seriously I would suggest that you’re going to want to invest in something that keeps your coins as secure as is possible.
Do websites do this?
To some degree they do, and some of the biggest players hold hundreds of millions of pounds worth of currency at any one time – so you better believe they’ve got serious security provision in place.
That said, there are people out there who have the ability to compromise the security of banks, security services and governments – and it’s therefore not out of the question that they’ve got their eye on these enormous online vaults of money too.
Keeping your cryptocurrency offline, under robust digital lock and key is paramount – and a hardware wallet lets you do exactly that – well worth the relatively small cost involved.