What is a hardware crypto wallet and why should you use one?

When it comes to crypto asset security, self-custody is undoubtedly the safest way to protect your digital heritage.

Self-custody simply refers to storing and securing crypto assets yourself, instead of relying on a third party to do it for you. One of the most effective ways to protect your private keys, and therefore your crypto assets, is to transfer your funds to a crypto hardware wallet — also known as a “cold wallet” solution. This is often called a non-custodial wallet, as opposed to a custodial wallet controlled by your exchange or crypto service provider.

Are you learning about hardware wallets and how they can be used to protect your cryptocurrency? Check out our latest Kraken Learn Center articles, What is a crypto hardware wallet? for all the details you need.

What is a crypto hardware wallet?

A crypto hardware wallet is a physical device that stores the private keys used to access your cryptocurrency offline. If you are still learning about private keys and the cryptography that powers cryptocurrencies, you can check out our article, How do cryptocurrencies use cryptography?

These hardware devices generally look like USB sticks or key rings and can be thought of as portable pocket vaults that digitally store important information needed to access your crypto funds. They cost between $50 and $250 and we recommend using one to store your crypto, especially if you don’t trade daily on Kraken. A hardware wallet is just like a regular pocket wallet: it’s something that holds your funds, is accessible only to you, and is much more secure than keeping your funds online.

How does a hardware wallet work?

Most of the online crypto wallets fall under the category of “hot wallets”. These include mobile wallets, desktop wallets, and web-based wallet services. All of these are connected to the Internet and store their respective private keys online.

Cold wallets, on the other hand, are completely offline and only connect to the internet if the owner chooses to move funds in or out of the device. Third party trust is not required. You maintain sole control of your funds in a hardware wallet, which means you have 100% access to your funds at all times, no matter what happens in the market.

When you purchase and use a hardware wallet for the first time, a set of secret recovery phrases will be generated from the device. If you lose, damage, or get locked into your hardware wallet, entering the specific recovery phrases in the correct order on a new device will recover your account and you will be able to access all the funds you have through the new device.

Security advice

To maximize the security of your hardware wallet, all cold wallet manufacturers strongly recommend that people store their devices in safes, locked boxes, or places that cannot be easily accessed by an intruder, just as you would protect any other personal item. at home.

Be sure to keep your hardware wallet in a safe place at all times, and separate your mnemonic key from the actual hardware. This ensures that even if the hardware is stolen or destroyed, you can quickly and easily access your crypto and move it to another device.

In Kraken, We believe self-custody is a vital part of being a good cryptocurrency user. If you want to learn even more about self-custody with a hardware wallet, as well as how to move cryptocurrency between Kraken and a hardware wallet, head over to Kraken Learning Center and take a look at our article What is a crypto hardware wallet? for even more information.

These materials are for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell or hold any crypto asset or to engage in any specific trading strategy. Some cryptographic markets and products are not regulated and you may not be protected by government compensation schemes and/or regulatory protection. The unpredictable nature of crypto asset markets can lead to loss of funds. Taxes may be payable on any returns and/or on any increase in the value of your crypto assets and you should seek independent advice on your tax position. For more information, see our Terms of Service.