Safety First: The Importance of Using a Crypto Hardware Wallet

A pile of cryptocurrencies
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By Frank Corva 

The prices of digital assets are volatile. This is hardly a secret.

But this volatility is only one dimension of the risk associated with crypto.

Another dimension of risk lies in how you custody your crypto assets.

Did you purchase some Bitcoin (BTC) on an exchange like FTX or Gemini and then never move the private keys for your BTC to a wallet for which you hold the recovery phrase — the 12-to-24-word list of words that gives you access to the private keys for your crypto asset?

If so, you don’t technically own this asset: You own an IOU for the asset. And that IOU only exists so long as the exchange through which you purchased the asset remains solvent.

For this reason, it’s worth making a modest investment in a hardware wallet so that you can keep the private keys to your digital assets in cold storage — or offline.

One such type of hardware wallet is the Ledger Nano S Plus. Before getting into the details of this particular wallet, though, let me give you some background on the Ledger company.

Ledger arrived in the wake of a crypto exchange hack tragedy

Ledger launched in 2014, the same year as the Mt. Gox hack — a crypto exchange hack in which the private keys to $460 million worth of BTC (at March 2014 prices) disappeared into the hands of a hacker in an instant. 

Ledger arrived amid the fresh trauma of the hack, at a time when crypto investors learned the meaning of the term “not your keys, not your coins” the hard way.

The company was founded by experts in the worlds of embedded security and cryptocurrency. Over the next eight years, these experts set the standard for hardware wallet security.

Until this day, no Ledger hardware wallet has ever been hacked.

The Ledger Nano S Plus: A more advanced hardware wallet

In 2018, hardware wallets solely served the purpose of storing the private keys to your digital assets offline. 

But now, in this new era of DeFi, it can feel as though you’re missing out if you’re just keeping your crypto in cold storage. You might feel that you aren’t maximizing the return on your assets if you aren’t staking or yield farming them.

Luckily, Ledger’s hardware wallets are changing with the times.

Now, through a wallet like the Ledger Nano S Plus, you can stake specific digital assets through the device’s native Ledger Live desktop or mobile interface. You can also sync your Nano S Plus with third-party apps like MetaMask to engage with a more extensive range of DeFi protocols while still maintaining the security of storing the private keys to your assets offline.

Play, but play safely

While we haven’t seen a crypto exchange hack the size of Mt. Gox in the last seven years, we have recently seen crypto lending and borrowing platforms like Celsius and Voyager go bankrupt, causing billions of dollars in losses for their clients. 

It’s been gut-wrenching to watch investors lose money in these modern crypto tragedies. Moving forward, though, we have to go back to the first principles of Bitcoin, the most important of which is “not your keys, not your coins.”

If you don’t hold the private keys to your digital assets, they technically aren’t your digital assets. Don’t believe me? Maybe you’ll believe the lawyers from Kirkland and Ellis LLP, the powerhouse law firm representing Celsius in its bankruptcy proceedings. Lawyers from the firm recently pointed out that Celsius customers turned over the rights to their crypto when they lent it to Celsius.

So, if these recent centralized finance (CeFi) debacles and the subsequent “crypto crash” they induced haven’t scared you away from investing in crypto, please take some of the events that triggered the crash as a warning and learn something from them. In other words, stay in the game, but do so safely. And by “safely” I mean learn how to use a hardware wallet if you don’t already know how to.

Most good investors will tell you that they got to where they are in large part by successfully managing risk. With crypto, the one dimension of risk that we can truly manage is whether we choose to self-custody the private keys to our assets or whether we trust a third party like an exchange or a borrowing and lending platform to hold them for us.

I’ll close with some words from Saifedean Ammous, author of what some consider to be the Bitcoin bible The Bitcoin Standard. In the book’s prologue, Ammous writes: 

“Should you come out of reading this book thinking that the bitcoin currency is something worth owning, your first investment should not be in buying bitcoins, but in the time spent understanding how to buy, store, and own bitcoins securely. It is the inherent nature of bitcoin that such knowledge cannot be delegated or outsourced. There is no alternative to personal responsibility for anyone interested in using this network, and that is the real investment that needs to be made to get into bitcoin.”

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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