A hardware wallet stores your private keys and keeps them secure in a hardware device.
The advantages of a hardware wallet over a software wallet:
- Your private keys are stored in a protected area of a micro-controller
- It can be used securely and interactively
- The software is open source, allowing a user to validate the entire operation of the device
There has been no known incident of a hardware wallet being hacked and coins being stole. With hardware wallets being new they have thus far maintained an excellent track record in terms of security. They are not 100% safe as there are ways that they can fail mostly due to user error.
How can a hardware wallet fail to protect your portfolio:
- Malware swaps recipient Bitcoin addresses: a hardware wallet will not protect you from sending Bitcoin to the wrong address. If your computer has malware installed it can watch for transactions and swap out the bitcoins address that is controlled by the attacker. That why it is important to have multi factor confirmation when sending bitcoin.
- Insecure RNG (Random Number Generator): hardware wallets depend on the RNG for its security, which is embedded in hardware as this generates your private keys. It is extremely difficult to crack the randomness of the RNG. An insecure RNG creates wallet keys that are weaker and can be later cracked.
- Imperfect implementation: the security of all devices rely on the quality of their build You can have bugs in the software, firmware or hardware that may allow gained unauthorized access to secrets.
- Compromised shipping process: A product not ordered direct from the manufacturer that is compromised. That is why it is vital to only order from the manufacturer directly.
We recommend picking up a trezor or a nano ledger s. They are the safest and most reliable manufacturers to date when it comes to storing your cryptocurrency. To minimize your risk make sure you order from the manufacturer directly. Use a secure pin that is not something associated to your life, such as last four of your social or phone number and store it somewhere safe.