Since Bitcoins can be stored offline, a BTC hardware wallet is one more form of storage bin just as the same with a paper wallet.
Being prone only to physical theft, Bitcoin hardware wallet has the same security as the paper wallets unless the step of having to generate the private key by wallet import format in some software is removed makes it very open to vulnerabilities online.
There are two parts in hardware wallets - one is the connected device and another one is the disconnected one.
The public keys are being held by the connected wallet and does all jobs of a regular wallet by selecting the transactions to sign. But signing in wouldn’t be possible since the offline device keeps the private key.
Next procedure would be to attached the device typically done through the USB port- but not secure - or through a QR-code.
Using the USB method, the transaction is transmitted to the newly connected offline device enlisted - transported back to wallet which then proceeds to the Bitcoin network that includes the myriad of noted to verify and include in the blockchain.
Using the method of QR code, the bitcoin transactions will be assembled through the software online and the QR code is made which then the offline device scans that generates in turn a transaction code which is signed and then scanned again to the software online and sent again to the network of bitcoin to verify.
There are also devices like Trezor that needs a pin. Considered a better brand known out there in a small group of hardware wallets that are offline, Trezor wallet’s private keys are made on the device and stays there forever - the keys are made deterministically and upon the initialization of the device, the seed key is made which means that if stolen or lost, a brand new device is possible to be rebooted upon command.
We also have the ledger wallet which has a number of unique features because of its ledger wallet and electrum wallet google chrome application compatibility. The wallet holds a microprocessor known to be the data securing standard of the banking industry.
Written on 19 Dec 2010.