When it comes to crypto-asset security, personal custody is unquestionably the safest way to protect your digital assets.
Personal custody simply refers to storing and securing crypto-assets by yourself, rather than relying on a third party to do it for you. One of the most effective ways to protect your private keys, and therefore your crypto-assets, is to transfer your funds to a crypto hardware wallet – also known as a “cold wallet” solution. This is often referred to as a noncustodial wallet, as opposed to a custodial wallet controlled by your exchange or crypto service provider.
Are you learning about hardware wallets and how they can be used to protect your cryptocurrency? Check out our latest Kraken Learn Center articles, What is a crypto hardware wallet? for all the details you need.
What is a crypto hardware wallet?
A crypto hardware wallet is a physical device that stores the private keys used to access your cryptocurrency offline. If you are still learning about private keys and the cryptography that powers cryptocurrencies, you can check out our article, How do cryptocurrencies use cryptography?
These hardware devices typically look like thumb drives or key fobs and can be thought of as portable pocket safes that digitally store important information needed to access your crypto funds. They cost between $50 and $250 and we recommend using one to store your crypto, especially if you don’t trade on Kraken daily. A hardware wallet is like a regular pocket wallet: it’s something that holds your funds, is only accessible to you, and is much safer than keeping your funds online.
How does a hardware wallet work?
Most online crypto wallets fall into the category of “hot wallets”. These include mobile wallets, desktop wallets and online wallet services. All of these are connected to the Internet and store their respective private keys online.
Cold wallets, on the other hand, are completely offline and only connect to the internet if and when the owner chooses to transfer funds on or off the device. No third-party trust is required. You remain in sole control of your funds in a hardware wallet, which means you have 100% access to your funds at all times, regardless of what is happening in the market.
When you first purchase and use a hardware wallet, a set of secret recovery phrases will be generated from the device. If you lose, damage, or lose your hardware wallet, entering the specific recovery phrases in the correct order into a new device will recover your account and any funds you have will be accessible through the new device.
To maximize the security of your hardware wallet, all cold wallet manufacturers urge people to store their devices in safes, locked boxes, or places that an intruder could not easily access – just like you would protect any other personal item in your home.
Be sure to keep your hardware wallet in a safe place at all times and keep your mnemonic key separate from the actual hardware. This ensures that even if the hardware is stolen or destroyed, you can quickly and easily access your crypto and move it to another device.
At Kraken, we see self-custody as an essential part of being a good crypto user. If you want to learn even more about self-custody with a hardware wallet as well as how to move crypto between Kraken and a hardware wallet, head over to Kraken Learning Center and discover our article What is a crypto hardware wallet? to get even more information.