How do hardware wallets work?

Last updated: January 21, 2019

So your interested to understand how do hardware wallets work. Your in the right place. Lets jump right into explaining how hardware wallets work.

Two popular hardware wallets the Trezor Model T and the Ledger Nano X are small hardware devices with computer chips that connect to your laptop or PC via a USB. They are small in size about 2 inches by 1.5 inches and have two buttons to interact with software that shows your wallet contents.

Hardware wallets work by holding multiple types of cryptocurrency in a centralized place. Some of the best crypto wallet hardware can support 1,000 coins. Each wallet inside of your hardware wallet has a private key. This private key is the most important data that your wallet has. Its like your bank account number. If it gets into Fraudsters hands they can steal all of your cryptocurrencies. This is where you hardware wallet comes into play. A hardware wallets primary purpose is to protect secure your cryptocurrency.

how do hardware wallets work?.jpg

How do hardware wallets work?

by protecting your crypto wallets private keys through multiple layers of security

Examples of how hardware wallets work protecting

Hardware device access is the first example of how hardware wallets work protecting your private keys. To access a hardware wallet a secure pin must be established by you in order to authenticate and gain access to your hardware wallet. Only you know this pin and it’s very much like an ATM pin, except most crypto wallet hardware pins are 6 - 8 digits. You enter this on the hardware wallet device like the Trezor model T or on laptop screen to access your hardware wallet.

Hardware wallet encryption is used to safeguard your crypto wallet at all times when in use and when in storage. GPG encryption is used in the Trezor Model T. The encryption secures data to and from your hardware wallet.

Hardware wallet approval when sending transactions this is a major point that many who describe how do hardware wallets work miss every time. For example: you want to send, Ripple XRP to your co-worker to pay for a motorcycle your purchased from him and you send it from your hardware wallet. To do so you access your wallet via pin entry and select XRP coins to send. Then you hit send. From there a confirmation on screen appears on screen of your hardware wallet. You must approve this. This is your opportunity to review for accuracy. You want to confirm the crypto amount that is to be sent and the wallet address you are sending to. Do this on the screen of your hardware wallet. Fraudsters cannot do this transaction unless they have your hardware wallet and pin to approve. This is almost impossible unless you gave this information to someone.

Cold Storage is the simple term derived from ‘the principle of isolation’, meaning a hardware wallet’s design makes it impossible to access private keys aka. the wallet because these private keys never leave the crypto wallet hardware. When using a hardware wallet like the Brand New Ledger Nano X or New Trezor Model T your private keys are never ‘hot’ or online to the internet. This means your crypto private keys (wallets for simplicity) can never be exposed to the internet or the laptop or computer you are using. They are isolated from everything, which is great for your crypto!

Now that you understand how hardware wallets work to protect your crypto, lets understand how the original technology behind hardware wallets Cryptography works.

The original history behind how hardware wallets work: Cryptography

You asked how do hardware wallets work and this is the original technology behind hardware wallets in use today by millions like you who want to secure their bitcoin and crypto. Cryptography is a process that allows signatures from crypto wallets to prove that they have original information. Let’s dive into more details about cryptography and share visual representations with hardware wallet examples

So what is cryptography and how does it work?

At the highest level cryptography is the practice of sending secure communication and data (bitcoin, crypto) from your hardware wallet in the presence of adversaries like the Fraudsters who want to steal your crypto.

image credit:  doubleoctopus.com

image credit: doubleoctopus.com

Step-by-step process flow of how hardware wallets work:

  • A hardware wallet like a Trezor Model T or Ledger Nano S has the original information or private keys. This is the ‘blue original text’ on the far left in the image above.

  • The hardware wallet signs transactions and after signed the transactions is sent. This is only done after the the transaction is approved and can be seen in the’ blue symmetric key on the left’.

  • This transaction goes on the blockchain/internet for execution. This is the ‘cipher text’ in the middle of the image above. Of course this only happens after the transaction is approved by you from your crypto wallet hardware.

    • At this point retracement is impossible (accessing private keys on hardware wallet) This is why hardware wallets are awesome for security.

  • Private keys are held on the hardware wallet and cannot be accessed. This is cold storage and the 'principle of isolation’ we touched on earlier.

  • On the far right is the receiver of the crypto currency this is their wallet and address who decrypts the text to accept the crypto.

I hope we answered your question: how do hardware wallets work and you have a solid understanding of hardware wallets to determine which hardware wallet is right for you. Remember, secure your private keys and keep them in your own possession. If you own your private keys, you own your bitcoin and cryptocurrencies. Hardware wallets are excellent choices to do this.

Was this post helpful for you? Please comment below to share your thoughts.