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Cold Storage, Part Two: Storing Bitcoin Securely on Hardware Wallets

In part one, we discussed one method of cold storage: paper wallets.  In this article, we will discuss hardware wallets.

Paper wallets work just fine for long-term storage of coins, provided you create them in a secure manner.  The only real drawback, other than being a little more complicated for those without much computer know-how, is that paper wallets represent a “one and done” type of cold storage.  Once your coins go to a paper wallet, they must stay there indefinitely until you decide to bring them online by importing the private key into a client.  After that, the safest option is to wipe the balance clean and start over.  You must create a new paper wallet each time you want to store additional coin, as this is the only way to ensure the private keys have not been exposed.

Needless to say, this can be somewhat of a hassle.  If you need to move coins in and out of cold storage on a regular basis, paper wallets won’t cut it.  You will be wasting a lot of time (and paper).

Enter hardware wallets.  Simply put, hardware wallets are the most secure and convenient way of storing crypto.  You can have ten cents or ten million USD worth of the most popular cryptocurrencies stored on a hardware wallet and easily transfer them between cold storage and hot wallets.  On top of that, your private keys will stay safe even if you have the misfortune of plugging your hardware wallet into a malware-infected device.  

You are your own worst enemy

The biggest liability that comes with hardware wallets is user error.  In order to provide some measure of safeguard against such errors, hard wallets come with both user-programmable PIN number and a backup seed.  The seed is a string of twelve random words that can be used to access your balance should you forget your PIN.  But if you lose or forget both of these, unspeakable horrors will be bestowed upon you.

The importance of remembering one’s PIN and keeping one’s backup seed in a safe place cannot be overstated.  If you want to know what happens in the event that someone loses his or her PIN and seed, read this story about a guy who did just that.  (Warning: you may have a panic attack just reading through it).

Do not print a copy of your pin or seed through a wireless printer.  Do not keep it stored in a document on your hard drive.  And whatever you do, don’t store it in a document in the cloud.  All of these make it vulnerable and could lead to your funds being compromised.  Just write it all down by hand using pen and paper.  Keep it somewhere safe.  Of course, so long as you remember your PIN, you won’t need the seed.  And if your wallet gets lost, damaged, or stolen, no big deal – you can simply get another one and restore your private keys (and hence your entire balance) using the 12-word seed.

Types of hardware wallets and supported currencies 

There are many hardware wallets to choose from.  There are three names that stand out from the crowd as the most popular, secure, and reliable.  These include KeepKey, Ledger, and Trezor.

KeepKey

keep key

Let’s begin with KeepKey.  Introduced in September 2015, KeepKey was the second hardware wallet to introduce the on-wallet screen feature.  This allows for an additional layer of security.  Instead of typing your PIN directly using your keyboard, KeepKey generates a random 3×3 grid of numbers that appear on the screen.  A greyed-out version appears on your computer, and you then must click the corresponding numbers.  This prevents any keystroke-logging malware from compromising your PIN.

KeepKey supports Bitcoin, Ethereum, Litecoin, and Dogecoin, Dash, and Namecoin.  A KeepKey wallet sells for $99. 

Ledger

leger nano

The Ledger Nano S may be an attractive option for those on a tight budget looking to protect their small stash of cryptocurrency.  While older models of the Ledger did not have a screen, the Nano S does.  And it only costs 58 Euros (about 68 US dollars).  The Nano S supports Bitcoin, Litecoin, Ethereum, and other altcoins (they don’t specify beyond that for some reason).

Trezor

trezor

Trezor was created in August 2014.  As the first hardware wallet to have ever been created, it has a special place in crypto history.  And now, the company has a huge announcement to make.

The next generation of Trezor hardware wallets has been available for pre-order since November 1st.  The Trezor team chose this date due to the fact that it represents nine years to the day since Satoshi Nakamoto published the Bitcoin whitepaper.

According to blog.trezor.io, The Trezor T boasts a large user-interface and large, vibrant touchscreen, enhanced security features, and advanced coin support with increased functionality.  “Plug your new Trezor in, and the screen will illuminate you, showing off its vibrant colors, waiting for your instructions”, they claim.

The Trezor T supports Bitcoin, Litecoin, Ethereum, Dash, Ethereum Classic, Zcash, and NEM.  It sells for 149 Euros or about 175 US dollars.

I personally use the Trezor and can vouch for the quality and usability of the product. I have pre-ordered the new Trezor T and paid for it with Bitcoin. They are estimating a ship date during January of 2018.

A grateful community

In the end, the past several years have seen hardware wallets grow in popularity as the overall market cap of the crypto space has shot to the Andromeda galaxy and beyond (we surpassed the moon many months ago).  In the early days of crypto, paper wallets were the only method of cold storage available.  Since then, tech entrepreneurs have stepped in and filled a much-needed void in the market: a way to safely store and easily transact with cryptocurrency.  And for that, we thank them.

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Part 1 of Series on Cold Storage

Wired Article on Losing $30k by Forgetting PIN Code

Keepkey Website

Ledger Website

Trezor Pre-Order

By | 2017-11-21T01:09:14+00:00 November 21st, 2017|bitcoin, Cryptocurrencies|

About the Author:

Jason is the founder of goldstockbull.com. He previously worked in data analytics for the world’s largest research firm, consulting to Fortune 500 companies globally. Jason eventually leveraged those skills to trade successfully full-time and after helping friends and family optimize their investments, he launched Gold Stock Bull and The GSB Contrarian Report newsletter. Jason is a cycles investor with a contrarian eye for identifying undervalued assets. He has built an expertise in both the precious metals and cryptocurrency markets. Jason believes in honest money, limited government, decentralization of power and enjoys studying alternative economic models.