Why crypto investors are switching to hardware wallets and how you can do it

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An increasing number of crypto investors are switching over to hardware wallets to protect their holdings from external events following the FTX exchange’s fall from grace.

With a starting price as low as $30 (Rs 2,440), hardware wallets use two chips – one to store the user’s private key and the other to connect to the internet. Most hardware wallets also offer security features such as two-factor authentication, biometric security, and a dedicated lock pin for the device.

Also Read: Six ways to make money while cryptos remain in a bear market

Liquidity concerns emanating from the rapid unwinding of the world’s largest crypto exchange by transaction volumes have spurred record-breaking sales for hardware wallet manufacturers.

Unlike decentralised exchanges that rely on their native tokens to facilitate transactions, hardware wallets work with multiple blockchains and act as a one-stop portable storage device for all forms of crypto assets, including non-fungible tokens (NFTs).

Storing a user’s private crypto keys offline, hardware wallets are proving to be the best self-custody solution that offer protection from online attacks.

Hardware wallet manufacturer Ledger clocked its best weekly sales in the second week of November, with sales only getting stronger as news of FTX’s imminent collapse flowed in. While exact sales figures are not available, the CEO of hardware wallet manufacturer Trezor confirmed a substantial uptick in its sales numbers.

The trend of crypto users shifting to hardware wallets is bound to get stronger as investors fret about the security provided by centralised exchanges.

Private keys

Apart from the financial misappropriation at FTX that roiled the crypto markets, events such as the Solana attack that compromised thousands of hot or internet-connected crypto wallets only exposed the frailties associated with custodial crypto storage options.

It is now apparent how exchanges with obscure business or funding practices can effectively rob investors of their crypto tokens in a flash.

Hardware or cold wallets, on the other hand, require users to safeguard their own private keys and thus provide them with full control over their holdings.

While hardware wallets have often been criticised for blockchain transaction fees and lack of convenience compared to hot wallets, they are preferred by investors with large crypto assets who do not want to expose their private keys to a third party.

Moreover, hardware wallets can be carried in person and can be connected to a computer or mobile only when a transaction needs to be initiated.

Shifting to a hardware wallet

The first step is to buy a hardware wallet from a trusted manufacturer – SafePal, Steel, Ledger and Trezor – preferably from the manufacturer itself rather than vendors on e-commerce sites.

Next, one has to set up the wallet’s inbuilt software on your computing device. After this, connect the hardware wallet to the USB port, follow the steps prompted and extract the pin code and 24-word recovery phrase.

The pin code and the recovery phrase must be noted down on paper and stored safely because losing them can make the hardware wallet inaccessible and deem the cryptos stored on it irretrievable.

Once the setup is complete, your crypto holdings can be transferred from a hot wallet or exchange-hosted wallet to the hardware wallet and can even be traded between hardware wallets with the help of its public address.

Apart from the one-time cost involved in purchasing hardware wallets, you may have to pay the gas (transaction) fees applicable for each blockchain, a small price for the peace of mind they offer.