Hardware wallet

A cold wallet is a type of crypto wallet that is not connected to the internet or interacting with smart contracts. Cold wallets, also known as cold storage wallets, are crypto wallets that generate and store your private keys offline, usually on a physical device.

Since cold wallets aren’t connected to the internet, they are immune to online threats like malware or spyware. Plus, isolating these accounts from smart contracts protects them from malicious approvals.

Cold wallets can come in a variety of forms, including hardware wallets, paper wallets, and HSMs (Hardware Security Modules).

Cold wallets generate and store your private keys in an offline environment.

Private keys are alphanumeric codes used to access funds and prove ownership over your crypto. 

With your private keys, you can access your crypto stored on the blockchain, interact with dApps, and sign transactions. 

The private key is temporarily retrieved from the cold wallet to sign the transaction. Once signed, the transaction can be broadcast to the network.

Using a cold wallet will help secure your crypto. Here is a step-by-step guide on how to create and use a cold wallet:

1. Buy a cold wallet from manufacturers and authorized resellers.

2. Download and install the companion mobile/desktop app.

3. Set up your cold wallet and write down the seed phrase.

4. Create a new wallet address.

5. Transfer your crypto into your cold wallet.

A hardware wallet is a type of cold wallet. Not all hardware wallets are cold wallets. A hardware wallet is considered to be a cold wallet if it doesn’t interact with any smart contracts. 

The most important difference between a hardware wallet and a cold wallet is that cold wallets are completely disconnected from the internet and do not involve any interaction with smart contracts.

When you buy and setup a Ledger device, your private keys are generated and stored offline on the physical device, which makes Ledger devices a cold storage wallet.

However, you can also interact with smart contracts, which makes your Ledger device a hardware wallet.

In other words, Ledger devices can either be a cold wallet or a hardware wallet, depending on your usage.

Whether a hardware wallet or a cold wallet is worth buying depends on your individual needs and circumstances.

While hardware wallets and cold wallets do come with a cost, the added security and peace of mind they provide make them a worthwhile investment. 

Hardware wallets and cold wallets are suitable for both users who hold a small or significant amount of digital assets.

Hardware and cold wallets are considered one of the safest ways to protect your crypto. They are physical devices that securely store your private keys offline. Being not connected to the internet significantly reduces the risk of unauthorized access to your funds and cyber-attacks.

Compared to a multi-purpose device like a PC or smartphone, hardware wallets have a limited attack surface to further protect your crypto assets, as well as physical transaction confirmation, encryption, and PIN code.

While hardware wallets are designed to be highly secure, they are not 100% hack-proof. Hardware wallets can potentially be compromised through various attacks:

• Tampering in the supply chain: if a hardware wallet is tampered with before it reaches the user, it could be compromised. Always ensure your hardware wallet is genuine before using it.

• Phishing scams: one type of attack that attempts to trick users into entering their seed phrases or connecting their wallets to malicious software or websites that pretend to be legitimate interfaces for the wallet.

• Firmware vulnerabilities: if there are vulnerabilities in the firmware that can be exploited, an attacker could potentially gain access to users' funds.

• Side-channel attacks: sophisticated attackers might use side-channel attacks to try to extract private keys by analyzing information such as power consumption or electromagnetic leaks.

• Physical theft: if someone gains physical access to your hardware wallet and knows or can guess your PIN, they could access your funds.

• $5 wrench attack: This term refers to the idea that if someone is willing to use physical force (i.e., threatening with a wrench), they could coerce the owner into unlocking the hardware wallet and transferring the funds.

While no system is completely immune to hacking, hardware wallets are generally considered to be one of the most secure options for protecting your crypto. However, it's important to note that no security measure is foolproof, and it's always a good idea to follow best practices, such as: 

• Purchase hardware wallets from reputable manufacturers and authorized resellers.

• Never share your seed phrase with anyone, storing it securely in a non-digital and separate location.

• Keep the hardware wallet secure and physically safe.

• Use a passphrase for added protection.

• Use a strong PIN and never disclose it to anyone.

• Regularly update the firmware to patch any vulnerabilities.

• Be vigilant against phishing attempts and only use official software and interfaces.

Ledger devices are considered to be one of the best hardware wallets. They are equipped with a Secure Element: a dedicated chip designed for secure data storage and processing, which adds an extra layer of protection.

The Secure Element is also responsible for driving the device's display, assuring that transactions remain unaltered. To authorize a transaction, the Ledger Secure OS interprets the transaction information and presents it in a format that is easy to understand, allowing you to be fully aware of the details you are confirming.

If you somehow break or damage your Ledger hardware wallet, you can still access all your crypto.

Order a new Ledger hardware wallet from the official Ledger website or an authorized reseller. Next, use the Ledger Live app on your computer or mobile to set up your new hardware wallet.

During the setup, you’ll be asked whether you are setting up a new device or restoring a previous one. Choose the "Restore" option, and enter your seed phrase (the series of words given to you during the initial setup of the old Ledger hardware wallet) into the new Ledger device.

Your new Ledger hardware wallet will now have access to all your crypto accounts and funds from your previous hardware wallet.