You’re telling me that my bitcoin isn’t stored on my Hardware Wallet?
I can pinpoint the exact moment I learnt this fact.
I had excitedly purchased my first hardware device before doing any real homework. It seemed like the right thing to do….everyone else was doing it. I decided that it was time to take my small stack off the exchange. While I was waiting for the device to arrive, I started looking into what it meant to have a hardware wallet.
You don’t know what you don’t know. I always repeat this to myself when I think I know what I am doing or thinking.
Bitcoin transactions are stored on the Bitcoin blockchain. Inside a block on the blockchain, there could be hundreds to thousands of transactions. Each transaction goes from one wallet address to another. When a certain amount of bitcoin or satoshis are transferred from one wallet to another, before the funds can be moved from the sending wallet address, a private matching key needs to be confirmed with the sending address. As that transaction is validated, if the private key is not provided from the sending address when it is broadcasted to the network, the transaction is rejected.
The private key is extracted from the seed phrase when it is translated into a long string of characters. Through an algorithm, the seed phrase generates a private key. This private key is then used for all transactions leaving any of the wallet addresses also generated from that same seed phrase. This seed phrase is so important to keep secret from anyone and everyone who shall not need to know it.
This brings me to why hardware signing devices are a great tool. Think about who has your seed phrase and the list of all the wallet addresses associated with that seed phrase. When you have bitcoin locked away on an exchange, they have access to all that information. They have control of the seed phrase and wallet addresses. You don’t even know what they are. All you know, when your bitcoin is on an exchange, is the total balance.
When you transfer the bitcoin from the exchange to a wallet address created by the hardware signing device (HSD), you now have full control over whether or not the funds in that wallet address will be able to move. Your HSD holds the seedphrase to back up and restore your wallet. Your HSD can generate infinite wallet addresses. Your HSD can create new child wallets based on the BIP-85 standard (Another great topic to write a future post) that you can assign to anyone you wish.
You have more power than a bank manager with a HSD. You don’t need to ask for permission or give a reason why you are moving funds from one wallet to another. This small device harnesses a lot of power. Some HSD’s are easy and intuitive to use. Some devices are very technical but rich with features. One thing is for sure, the industry of HSD’s is trying to move in a direction where a computer interface or phone app will soon not be needed to complete transactions. These devices are discrete and can be hidden in a box of junk, if you really wanted to.
As a novice bitcoiner, all of this may seem very overwhelming. It’s so much easier to just go on your mobile phone, open an app and buy some shares in a stock. It is easier but you don’t own the shares outright. They can be taken away at any time. Not likely, but possible. When you hold the keys to the bitcoin wallet via a HSD, nobody can move any funds until you want. It is possible to lose your HSD and your seed phrase but you just need to be vigilant and secure your seed phrase and device.
As you navigate your way down the rabbit hole, please remember to take it slow. No need to rush. No emergency. Get the help you need by hiring the professionals that can walk you through all this. Bitcoin Citadel has a well versed and personable team with a wide array of skills. We are experienced and can help. Contact us and see if we are right for your needs.