What is a Hardware Wallet?
First off I should explain what one is before I go on to criticize it. The hardware wallet I will be talking about is the Ledger Nano S, which is probably the most sought after hardware wallet in the crypto community. First, a hardware wallet to users is known as an “offline” wallet because of the nature of it being in a usb like device, which isn’t connected to any network until its plugged into a computer. Second, a hardware wallet has a mechanism that forces the user to push a button on the device itself to “Sign” the transaction, so it can’t be compromised on the computer side. Third, a hardware wallet is created using a 24 word key that acts as the “Secret” for the wallet and a Pin to physically protect someone from gaining full access to it.
Before doing a video/post on this topic, I put a poll on twitter (see below)
They were not surprising and exactly what I expected to see because of the perception of hardware wallets being “Safe”.
Why Hardware Wallets are NOT as Secure as they Seem?
I’m going to explain this from a XRP account perspective because that is what I’m familiar with. Every XRP Address from creation has 2 keys, a private “Master” key and a public key. In the case of a Hardware wallet that “Master” is a 24 word phrase. Whenever I hear that “Hardware” wallets are offline, I cringe because that is simply not true. Every persons XRP account/address is view able and live on the XRP Ledger at ALL times. If you compare a hardware wallet to something like the Toast (mobile) wallet or Harbor Wallet (desktop), they both have private keys & a pin to protect access. What if I lost my hardware wallet and phone? How would I recover my funds? Well I’m sure you backed them up, and guess what? They are both backed up on a piece of paper that would bypass a hardware wallet or Mobile wallet because your XRP is always online!
You can think of a hardware wallet as a digital pin pad on a safe, its more convenient, but when the battery dies or fails, you will still need to use the key/combo that came with the safe. When convenience goes up, security goes down.
One Last Thought
A Software Wallet like Harbor or Toast are Free.
The Hardware Wallet is $75+, but just because your paying for something does make it any better.