What is An Air-Gapped Wallet?

An Introduction to Cryptocurrency Storage

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.

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 Wallet?

An air-gapped wallet is a form of offline cryptocurrency storage – similar to a hardware wallet or cold crypto storage. However, some subtle differences elevate the security of air-gapped storage.

Unlike most crypto storage options, an air-gapped wallet is disconnected from all external networks, including the Internet, Bluetooth, and NFC. You’re probably wondering how they complete transactions if they aren’t connected to a network.

The answer lies in bridging the air gap.

Usually, this is achieved by installing companion software on a PC.

Transactions are created and partially signed within the software, which generates a QR code or is added to a microSD card.

Then, using the air-gapped wallet, you’ll scan the QR or insert the SD card to finalize the transaction. This updates the QR or SD card, which is then ready to be reinserted into the companion software.

An air-gapped wallet is never active on any external network.

Advantages Of An Air-Gapped Wallet?

Superior Security Compared To Online Wallets & Hot Wallets

Air-gapped wallets are considered the most secure crypto storage.

Realistically, your cryptocurrency is most at risk when your chosen storage device connects to the internet. This gives hackers and malicious malware the best opportunity to infiltrate your security measures.

Online wallets (hot wallets) are always connected to the internet, meaning they’re most at risk.

An Added Layer of Protection Compared With Hardware Wallets

Technically, an air-gapped wallet is a form of crypto hardware wallet, but they have an extra layer of security. A hardware wallet needs to be connected directly to a PC or network to perform transactions.

So, while it is offline the majority of the time, there are instances when a network connection is needed. Therefore, there is a period of time when they’re vulnerable to attacks.

On the other hand, an air-gapped wallet uses companion software to partially sign transactions before finalizing them offline. This gap means it is never directly connected to another device or network. In fact, there are no ports to connect them to anything else.

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 optionsavailable.

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 Escrypto and its range of crypto storage options.