Looking After Your Private Keys – Hardware Wallets vs Software Wallets

Today I’m going to talk a little bit about why we recommend hardware wallets over software wallets and some of the key differences between them.

“Being your own bank” is a new concept to anyone entering Crypto, since we’re used to traditional banks taking care of our “regular” money for us. In the Crypto world, however, we’re in charge of our own funds – so it’s essential that we get it right!

Online vs offline

The most important distinction we can make between hardware and software wallets is the idea of our wallet being connected to the internet (online), or not connected to the internet (offline).

This all comes down to where our private keys are stored, i.e. our “access codes” to our crypto.

Obviously, for a hardware wallet, our private keys are stored on a physical item that is only ever plugged into our computer once in a blue moon. This makes a hardware wallet an offline device, which isn’t connected to the internet in any capacity.

On the other hand, software wallets are most often connected to the internet, either directly (in a hosted wallet or exchange) or indirectly (stored on your computer, which is connected to the internet).

Having your private keys stored offline, on a device that has zero internet connection, means that they are never within reach of hackers at all.

The dangers of software wallets

Although software wallets often exist in a file or application that isn’t directly connected to the internet, it’s still a danger that the device is connected to the internet at all.

A recent case that demonstrates this was a hack that involved the CEO of Nexus Mutual, a Cryptocurrency project based on Ethereum. The CEO – Hugh Karp – had $8 million worth of tokens stolen from his Metamask software wallet, after an attacker gained remote access to his computer.

If Karp had used a hardware wallet for most of his funds rather than a software wallet, his coins would’ve been safe from an online attack.

What happens if I lose my hardware wallet?

A common question I get asked is: “What happens if I lose my hardware wallet?”

Thankfully, hardware wallets like TREZOR get you to create a back-up plan in case your hardware wallet gets lost or damaged. This involves making a copy of a unique seed-phrase – a list of 12 to 24 randomly-generated words, which can be used to restore your funds in a new wallet. Writing these words down manually means your private keys will still stay offline, but you’ll have another way to access your coins in the unlikely event that something happens to your hardware wallet.

Remember that anyone who finds your seed phrase could use them to access your coins. So, even though it’s offline, you still need to store it in a secure physical location.

It’s all about looking after your private keys

At the end of the day, it comes down to one simple concept: Where are you keeping your private keys (access codes)? This includes any form of private keys, including everything from the long string of numbers, the QR code, the seed phrase, or hardware wallet.

If they’re on a computer that‘s connected to the internet, there’s always a chance that someone else on the internet might be able to access them. Similarly, if you’re careless with a hardware wallet or don’t make a back-up, you could lose them that way too.

Your private keys are the keys to your wealth. Keep them offline, make back-ups, and always store them somewhere safe! That way, you can rest assured that your crypto wealth will remain safe and sound until you need it.