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Cryptocurrency and decentralized finance continue to move at an unbelievable speed. Adoption rates continue to rise, and new products continue to be released. With that said, one issue that continues to attract attention is security.
An Introduction to Cryptocurrency Storage
With high-profile news of centralized exchanges not keeping users' crypto safe and hacks continuing regularly, keeping your crypto safe is as important as ever.
Self-custody of cryptocurrency is one of the most effective ways of protecting your digital assets. Since the introduction of the air-gapped wallet, security has been taken more seriously than ever.
But, what is an air-gapped wallet, and how do they work?
What is An Air-Gapped Crypto Wallet?
An air-gapped crypto wallet is a method of storing cryptocurrency in a way that the wallet's device is completely isolated from the internet or any other network. This type of wallet is considered one of the most secure methods for holding cryptocurrencies because it minimizes the risk of hacks, cyber-attacks, and other unauthorized access that typically require a network connection.
Here's a breakdown of how air-gapped crypto wallets work:
- Isolation from Networks: The wallet, usually stored on a device such as a computer or a hardware wallet, never connects to the internet. This physical isolation helps prevent unauthorized access and online threats.
- Offline Transaction Signing: Transactions are signed offline on the air-gapped device. The user creates a transaction on a connected device, transfers it to the air-gapped device (usually via QR codes or USB drives, though USBs can pose a security risk), signs it there securely, and then transfers the signed transaction back to the online device to broadcast it to the blockchain network.
- Enhanced Security Protocols: Since the device is offline, it is immune to traditional cyber-attacks like hacking or phishing. The security measures often include not only hardware and software protections but also physical safeguards such as storing the device in a secure location.
- Backup and Recovery: Despite the security, users must also ensure they have secure backup protocols for recovery phrases or keys, which are necessary to recover the wallet’s contents if the device is lost, damaged, or fails.
Advantages of an Air-Gapped Wallet
Superior Security Compared to Online Wallets & Hot Wallets
Air-gapped wallets are considered the pinnacle of crypto storage security. The primary vulnerability for your cryptocurrency arises when the storage device is connected to the internet, providing hackers and malicious software the optimal chance to breach your defenses. Online wallets, or hot wallets, maintain continuous internet connectivity, placing them at the highest risk of cyberattacks. Quite literally the opposite of an air-gapped crypto wallet.
Enhanced Protection Beyond Hardware Wallets
While technically a subset of hardware wallets, air-gapped wallets boast an additional layer of security. Typical hardware wallets must be connected to a computer or network to execute transactions, exposing them to potential threats during these times. Air-gapped wallets, however, enhance security through a procedure that involves partially signing transactions using companion software on a separate device and then finalizing them offline. This process ensures that the wallet never directly connects to any other device or network and, importantly, lacks any ports for physical connections, eliminating common attack vectors.
Physical and Digital Isolation
On top of air-gapped crypto wallets being disconnected from the internet, they are designed to be resistant to tampering and unauthorized physical access. This dual isolation helps safeguard against both digital and physical threats.
Resilience to Emerging Cyber Threats
As cyber threats evolve, air-gapped wallets remain one of the most resilient forms of cryptocurrency storage. They are immune to many new and emerging digital threats that specifically target online and less secure offline systems, thereby offering an enduring shield against a wide range of cyber risks.
Control and Autonomy
These wallets provide users with greater control over their digital assets. Without the need for a third-party interface or reliance on external platforms for transaction verifications, users can manage their cryptocurrencies independently, ensuring full autonomy and reduced operational risks.
Disadvantages Of Using An Air-Gapped Wallet?
Lengthy & Tiresome User Experience
One of the most notable differences with an air-gapped wallet is the user experience. As you might expect, when a wallet becomes more secure and completely offline, you have to jump through more hoops to complete a transaction.
Hot wallets are always live, so completing a transaction can be done almost instantly. Furthermore, some hardware wallets require plugging into a network-enabled device for transactions to be initiated.
However, with an air-gapped wallet, you must factor in the time it takes to work across two devices. In markets as volatile as crypto, prices might have changed drastically from when you first created the transaction to the time you finalize it.
There Are Still Potential Risks
While they’re the most secure option, it doesn’t mean they are entirely impenetrable. Even the best air-gapped wallet has to communicate with other devices at some point. So, don’t think they’re 100% secure because that’s impossible.
Hackers could install malware that monitors MicroSD card transactions. Additionally, it's possible to hack the MicroSD card itself or the ports on your device that interact with it.
Furthermore, QR codes could be vulnerable if a device's camera or firmware is hacked.
While these attacks are much less likely and require a lot of skill, they are possible.
Is An Air-Gapped Wallet Right For You?
If security is your main priority, then an air-gapped wallet could be the best of the cryptocurrency storage options. However, you need to consider the pros and cons.
An air-gapped wallet doesn’t offer the flexibility and transaction speed of a cold wallet or hot storage.
Furthermore, it’s important to consider if you’re holding an amount of crypto that you deem worthy of being placed in such secure storage.
Often, cryptocurrency investors use multiple wallets. They’ll have an online wallet for active trading and store the rest of their portfolio in either an offline crypto wallet.
Review your portfolio, assess the features and functionality you need, and make an informed decision based on the crypto storage options available.
High-Security Alternatives to An Air-Gapped Crypto Wallet
While air-gapping is highly secure due to its complete isolation from the internet, several technologies offer similar levels of security with more flexibility:
Multi-Signature Wallets (Multisig)
This requires multiple keys to authorize a single transaction. This reduces the risk of theft or loss as no single person or device can control the assets alone. Even if one device is compromised, the assets remain secure because additional keys are needed for transactions.
Hardware Security Modules (HSMs)
HSMs are physical devices designed to manage digital keys securely and perform cryptographic operations within a tamper-resistant hardware environment. They’re an alternative to an air-gapped wallet because they provide a secure space for key management and cryptographic operations, protecting against both physical and logical attacks.
Encrypted USB Keys
One of the more common alternatives to air-gapped wallets is USB devices equipped with strong hardware-based encryption. The devices allow for secure transportation and storage of data. Even if the USB device is lost or stolen, the encrypted data remains protected.
The Best Air-Gapped Hardware Wallet Alternative
ZERT combines the high security of cold storage with the accessibility of hot wallets. This hybrid approach ensures that while users enjoy the convenience of quick transactions, their digital assets remain protected against online threats.
- Cold Storage Integration: Just like air-gapped systems, ZERT stores cryptographic keys entirely offline, safeguarding them from unauthorized online access. This level of security is crucial for protecting assets against cyber threats.
- Secure Online Signing Mechanisms: Although transactions are processed online, ZERT ensures that the private keys never leave the secure environment of cold storage. This setup allows users to engage in trading and other transactions without compromising the safety of their keys.
- Advanced Security Features: These include biometric authentication, multi-factor authentication, and end-to-end encryption. Each feature is designed to protect user access and transaction integrity, further boosting the platform's security.
In Summary
While cryptocurrency security is incredibly important, the most secure storage option isn't always the right choice.
Yes, an air-gapped wallet will provide the most peace of mind, and your crypto is less likely to get hacked. However, there are downfalls to using them, and they aren’t 100% safe.
For institutional-grade security, user-friendliness, and on-hand customer support, check out Zert and its range of crypto storage options.
Frequently Asked Questions
How do air-gapped wallets work?
Air-gapped wallets operate by maintaining strict physical and digital isolation from networks. Transactions are prepared on an internet-connected device, transferred to the air-gapped device typically via QR codes or physical media like USB drives for signing, and then transferred back to an online device to broadcast to the blockchain. The wallet never connects to the internet or any other network, providing robust protection against online attacks.
Who should consider using an air-gapped wallet?
Air-gapped wallets are best suited for individuals or entities that prioritize the highest level of security and are willing to manage the additional steps involved in their operation. This makes them ideal for long-term storage of significant amounts of cryptocurrencies. If you’re new to crypto, you should look at the best crypto wallets for beginners before considering air-gapped alternatives.
Can air-gapped wallets still be vulnerable to attacks?
Yes, while air-gapped wallets are highly secure, they are not impervious. Threats can still arise through physical access to the device, or if malware is introduced via the mediums used to transfer data, like USB drives or QR codes.
