A hardware wallet is a device that is used to store Bitcoin and other cryptocurrencies and is considered the safest method of storing cryptos. They are usually a small physical device that holds your private keys offline and disconnected from the internet, decreasing the chances of being hacked or compromised.
So how do they work exactly? Hardware wallets use a form of 2FA (2 factor authentication) to protect your cryptos. The wallets don't actually really hold any cryptocurrencies. Technically speaking, a wallet just holds your personal passwords, often referred to as keys. Each crypto you won will have it's own key. These keys are what's used to track how much of the crypto you have and allow you to make transactions with that crypto.
Hardware wallets usually look like tiny USB devices, and they offer a very simple approach to security. This is because when a device is more complex, there are usually more opportunities and oversights that allow hackers to infiltrate it. Hardware wallets are so simple they are practically impossible to hack or infect with anything malicious.
Setting up a hardware wallet is fairly easy. The first thing that you will be required to do is keep a record of the set of words that you’ll be given when initializing the device. This should be done by writing them down on piece of paper and then keeping out of reach of anyone.
These words are a way to restore any private keys, acting as a sort of passphrase, that your hardware wallet generates. This also means that whoever is able to access these words would also gain access to the cryptos in your wallet, so it’s important to keep these words offline and in a safe place, preferably in a fire-proof safe if possible.
When using a hardware wallet, you’ll need to connect it to your laptop or desktop and download the required software in order communicate with it. This should automatically begin installing on your computer, once the wallet is connected.
Hardware wallets only read and allow very simple and very specific types of data to pass through to it, such as cryptocurrency transactions. This is to prevent any malicious tampering.
When completing transactions, your private key never leaves the hardware wallet. The only thing that gets transferred between your computer and the hardware wallet is the unsigned and signed transactions that occur.