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Using a hardware wallet: Part I – Introduction

May 7, 2018
Ledger Nano S and original box

The Ledger Nano S (official website: https://www.ledgerwallet.com/ ) along with the Trezor (official website: https://trezor.io/ ) are the two hardware wallets we recommend most to our clients. Hardware wallets are physical devices that connect to a PC or Mac computer (in most cases) and provide the current optimum balance between security and ease of use. The important difference between hardware wallets and the software wallet apps you can download to your phone or PC is that the private keys inside a hardware wallet reside only on that separate, physical device; they are never exposed to an internet-connected computer. This is essential for preventing many types of attacks that a software wallet is potentially exposed to.

Note that private keys are the secret pieces of data needed to spend cryptocurrency assets, such as bitcoin, to a new address. Addresses are the public destinations in Bitcoin and other crypto transactions. Addresses can also be used to lookup balances and transaction histories on most cryptocurrency networks.

Hardware wallets–when used properly–will put you well ahead of most Bitcoin and other coin users when it comes to safe storage, however it’s important to note that crypto asset security is an ever evolving field. We can only make recommendations for the best storage solutions and usage practices we know, not guarantees. That being said….

The vast majority of bitcoin and other asset losses occur due to one of four reasons:

1. Storing your assets on an exchange or other custodial service that is later hacked or found to be fraudulent
Solution: Use a non-custodial wallet, such as the Trezor or Ledger, to manage your coins and/or tokens.

2. Never making a proper backup of your wallet and then suffering a loss or corruption of that wallet, or forgetting the login details
Solution: Carefully follow instructions for setting up your Ledger or Trezor, taking special care to write-down your wallet's recovery phrase and to store that backup very securely.

3. Creating a transaction without visually verifying that the destination address is correct (remember, cryptocurrency transactions are irreversible)
Solution: Adopt the best practice of checking the first and last few characters of every address you paste or enter, whether sending or receiving (see Part III).

4. Being a victim of a common scam adapted to take advantage of cryptocurrency
Solution: Read through our guide to common Bitcoin scams posted at AthenaBitcoin.com, just to be better informed of the types of fraud out there.

 

By no means are these risks difficult to overcome, but they do require education and planning to protect against. By purchasing a hardware wallet you are wisely guarding yourself, not only against various forms of malware that can impact traditional wallets, but also virtually eliminating your exposure to the first risk in the above list. Follow the instructions in Part II: Setting up the Ledger Nano S to protect yourself against the second. For the third risk, see Part III: Best Practices for Safe Transactions. For the fourth risk, you can protect yourself by learning to recognize common Bitcoin scams (an article at AthenaBitcoin.com).