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Hardware Wallet Meaning

Sep 23, 2023 | Updated Sep 23, 2023
A hardware wallet is an external, physical device designed to securely store a user’s private keys offline.

What is a Crypto Hardware Wallet?

No matter what type of wallet you use, your cryptocurrency is always stored on a blockchain. Hence, wallets do not truly store your crypto but rather provide access to them. And whoever has the right private keys can access the assets. This narrows it down to securing your private keys, which are typically stored within the crypto wallet and must be kept safe to prevent unauthorized access of your assets.

A hardware wallet, in the context of cryptocurrency, is a physical device specifically designed to enhance the security of your private keys by storing them offline.  The main idea behind hardware wallets is to isolate your private keys from your easy-to-hack smartphone or computer – basically anything that can expose your private keys on the internet. 

Self-Custody and Wallets

Hardware wallets empower users to self-custody their assets by providing a secure infrastructure for managing the private keys. This not only enhances security but also aligns with the fundamental principles of decentralization and sovereignty that underpin the cryptocurrency ecosystem. With hardware wallets, users have the freedom to transact, store, and secure their assets independently. This puts them firmly in charge of their crypto journey and reduces their exposure to the risks associated with centralized custodianship.

On the other hand, exchange wallets operate differently in terms of custody. When you hold your cryptocurrencies on an exchange, you typically do not have direct access to the private keys associated with your assets. Instead, the exchange itself retains custody of the keys on your behalf.  If the exchange is hacked, goes bankrupt, or becomes insolvent, there is a risk that your assets may be lost or compromised.

Software wallets give you custody of your assets but they store the private keys online. Since they are connected to the internet, malicious actors can exploit vulnerabilities in the user’s operating system or the wallet software itself. Hackers can gain unauthorized access to the private keys and subsequently steal the funds. 

Light Node

A light node is a blockchain component that stores limited or lightweight information rather than a complete copy of the network. Light nodes simply act as communication endpoints.

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Identity Verification (IDV)

Identity Verification (IDV) is the process of confirming the validity and authenticity of an individual’s identity. The process involves validating the individual’s personal details from reliable sources to prevent fraud.

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Network Fee

A network fee, also called a miner fee, is the fee that users pay a blockchain network to conduct a transaction on that network. The network fee incentivizes miners or validators to verify and confirm…

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