You probably don't need a hardware wallet
Some counter-arguments against the overly present HW wallets in bitcoin.
Like so many people, I see ads for hardware wallets all the time in my X feed, or even when listening to podcasts you get the occasional promotion for one of these devices.
Hardware wallet manufacturers and brands are a part of bitcoin life and culture. They’re sponsors, and they of course like to sell their devices.
As a long-time bitcoiner, I can say that I’ve given out more money (bitcoin) buying hardware wallets than what’s good for me.
I supported projects and even had one of the prototypes of the Case wallet (fingerprint sensor, international sim-card and a camera!) in 2015/16, a thing I could hardly use, since it was bitcoin in your pocket, on-chain, before there was ANY need for that.
The point is, I love these devices.
I love playing around with them.
That’s fun when you’re a techie or someone who’s really onto bitcoin and wants to try the new Trezor, Ledger (yuk), Bitbox or cold card wallet…
Unfortunately, except for this “obsession” with trying these devices out, and the occasional corporate/business needs,… the secure feeling of having one (or more) prevails over the real need.
There’s a series of downsides to having a Hardware wallet, which are often overlooked.
The main downside is actually summed up as : “you don’t need it”
Let’s elaborate.
For most people, I must say that I can’t recommend having one of these devices anymore. The market is saturated and the devices are often sold to people who are even unable to use them properly. Or customers that spent way more money buying them, than what’s eventually stored on it!
They’re of course handy “signing devices” for securely signing a transaction or message. They’re also a great way to do multi-signature and so on. That’s all neat.
But your average user,... most of the people don’t need it. There are several reasons for that.
Before the readers put me away as a fiat-slave dissing on bitcoin, or some dude trying to shill his own project: no …
I don’t have my own “solution” I’m selling,
I don’t go and ask you to click my referral link or ask for money here. I probably bought more hardware wallets in my life for a higher amount than most users hold in bitcoin right now. So no,... I supported this industry, I don’t hate it. I just want to voice my opinion her on the saturation of the market and the stupidity of holding your keys on a device that inherently can’t be trusted (in theory).
The reasons:
1
Bitcoin inverted effect on diminishing cash value :
A bitcoin amount today buys you less than that same bitcoin amount in a few years. Let’s start with an obvious, but often forgotten reason to NOT invest in a hardware wallet. The price. The price is around 150 to 350 $ in fiat now in 2024. I even bought such devices at 600$ once (160000$ in today’s price;). Over time, most people that are into bitcoin less than 5 years, are better off buying bitcoin for the amount they would have bought the HW device for.
One can of course make the argument that it costs more to lose your keys altogether, but that’s also the case with a paper with your seed phrase or any other method.
Securing your keys is of course extremely important. No matter what you want to use. It doesn’t take away the fact that buying a Hardware wallet for fiat or for bitcoin isn’t economically wise, certainly not for beginners or people who have less bitcoin than the 20x cash value of the hardware wallet they want to buy. I have a simple formula here.
The Deadeye’s Hardware Wallet Law:
which is a formula: Y < (X / 20)
If you have 1 million sats today (660$ at time of writing) then it makes little sense to buy a hardware wallet for 179$ in my opinion.
A good rule of thumb is: take the amount of bitcoin you want to secure, calculate the fiat price in dollar HW price = X
Take the fiat price in dollar + shipping in fiat = Y
If Y < (X / 20) that fiat price is less than a factor 20 of what you want to secure, then you might consider buying the HW wallet.
Example: Johnny wants to buy a new coldcard at 219$ + 41 $ shipping.
He has 2,3 million sats (1524$) 260 < (1524 /20)
So 260 < 76.2 … is not true , so he shouldn’t buy this and stack the sats instead on a cheaper solution (software wallet, or a self-generated seed phrase or even a reputable exchange in absolute last resort, if the tech-lever is very low)
2
Entropy - the entropy on a hardware device is delivered usually by “special chipsets” that generate a random (or close to random, as computers can’t be really random) seed phrase for you. Just like the old paper wallet generators only, they use some sort of scheme or algorithm to generate this. As a user you’ll have to trust that algo. And trust that it’s not broken by a hacker that finds the secret sauce and can generate more or less the same kind of entropy (even then, it would be extremely unlikely they would be able to re-generate your seed).
But it’s a factor: the entropy a person can generate themselves (with play cards, dice, or a cat tapping a keyboard…) is always superior to some algorithm on a device Hardware itself can be fragile or downright sub-par.
The hardware wallets of course exist because of the tech inside. Mainly the print board, the screen, the chipset and some even a battery(!).
The hardware is NOT under your control. It’s made in a few big factories in Asia usually and even if you trust the building process completely, there’s no way for an average paranoid user to “trust” the unverifiable source of the chip design, chip manufacturing and the software that keeps the thing running.
The hardware itself is a blind trust you put into the image and reputation of a company. Some of these companies are dodgy at best from my personal perspective and opinion (nGrave, Ledger …) others have a more steady reputations and exude trustworthiness (Bitbox, …) Still… they are all just hardware, a sum of parts you don’t control and don’t verify.
When is the last time you checked the “military grade secure element chipset” in your super-duper hardware device? Where was it manufactured and who designed the chip lay-out?
3
Cycling through versions.
HW wallets go through iterations and new version all the time. When you bought a coldcad Mark 1 back in the day, it’s now long obsolete. You can’t use some features and you’re even lucky if the hardware itself still functions after being in storage for +6 years.
When I asked the manufacturer why they recommended outphasing the coldcard around two years ago, they said something like “it’s to keep up with security”.
It even makes sense from their tech and product perspective, but in the end, it’s not really what people expect (realistic or not). Well… that’s like a subscription in my opinion? Every two years, you fork out something of 150 to 200$ for a new hardware device (plus shipping and customs) and the risk involved to put your funds on the new device by transferring to the new wallet’s addresses or put the old seed in that new device and so on…
All this… to have the “right tool” for keeping 24 words “safe”? So, our formula in point 1, was adjusted to /20 to compensate for that “cycling” through versions at a rate of a few hundred dollars every 2-3 years at least. That’s a bit of the top in my opinion. A good bitcoin hardware device should at least be usable and up to par for 10 years at the very least. Words written down or secured anywhere, last forever.
4
Easy of use is still not ok: This might be very controversial with all the HW wallets claiming to be “easy to use”, but in fact: they’re not. Most users (and I take some family members and friends as an example here) can’t make heads or tails from how these things work. Give any non-tech user a coldcard, ledger of bitbox and they’ll not be on their way to use it as an everyday device.
It might sound silly for the daily users of such a wallet, but a “noob” in my opinion is better off learning to familiarize themselves with software wallets first before even considering buying a HW wallet.
5 Buggy hardly tested apps
The hardware wallets accompanied by an app (like Jade’s Green wallet to name one) are often introducing an extra layer of problems (both on the bugs and the risks). Who knows that this software will still be available in a few years time? We saw many things come and go over the years.
6
Alienation from the private keys: New users are better of learning the ropes with seed phrases and private keys by using Electrum, Sparrow and the likes (or even stack wallet duo) in order to learn what holding your own keys means.
People who start their journey with a hardware wallet often think about their bitcoin holding as something that tangible “inside the hardware wallet”, instead of looking at the key-perspective. I think a lot of people are alienated from the bitcoin concept of having your own keys by using HW wallets. (and yes, that’s not a strong argument, I know, but it is a factor to take into account)
7
You’ll have to securely store your seed phrase ANYWAY.
The fact remains, that you bought a hardware wallet, and still have to safely secure your private keys, seed phrase at some point and do it securely.
That’s something you need anyway. So… why not just use your paper with 24 words and use the wallet on occasion by using a secure “other way” (seed signer, an electrum wallet, sparrow,...) when you need to do a transaction?
I believe people will also do les on-chain pure bitcoin transactions when they need to do more work when not using a HW wallet: it’s an extra barrier to hold instead of paying. (if you like to do that of course)
8
Upgrade processes aren't always that clear on some HW wallets.
I personally “bricked” a coldcard this way, by accidentally using a wrong upgrade file on a Mark 2 coldcard, and it was unrepairable after that.
The 12 or 24 words are the most important thing you have, … you don’t need a hardware device if you’re just starting, or just are a hodl’er.
9 Centralized software. Bugs and “new” features
Lots of bugs in the software also cause problems: For example; your 24 words from device A, can’t be imported to device B although they should “speak the same language” in theory (BIP39).
One device accepts using two times the same word in a seed phrase, one doesn’t.
There are other bugs: like random reboots, unlocking problems, strange implementations in the software (like Trezor trying out implementing the Swiss “travel rule” setting one day and pushing this upgrade to the users) and so on….
Without a HW wallet, you can just choose yourself what software / node or wallet to run anything on, and you’re not tied to the centralized, expensive and often untested way of hardware wallet manufacturer’s viewpoints and or “secret deals”.
10) And then there’s the privacy concern. We all know about Ledger’s famous “mishap” where they leaked all the home addresses of hardware wallet customers .. some of them actually had to move to other places to live as a result.
Conclusion:
In my opinion; hardware wallets are toys for bored bitcoiners.
And I admit I was one myself for a long time. (I am one of these people yes)
The blockstream Jade was the last hardware wallet I’ve ever bought I guess.
I’m done with the crappy interfaces, the buggy software, the ‘subscription’ to endless upgrades new hardware and the strange feeling of unease when storing something on such devices while you depend on the “open source” nature of something made in China or wherever.
There are much cheaper, easier and more secure solutions.
Hence, most people don’t need hardware wallets.
deadeyes
@avbpodcast