Is it OK / safe to store the block chain on an external drive? I have seen products which are 'physical wallets' (a USB drive) which seems like the same concept as I am investigating here.
To add to what achow101 and bob123 already posted on this matter:
Note that the
blockchain is something entirely different from your
wallet.
The blockchain is a collection of files that contains the whole history of every transaction ever made. A wallet file is a collection of private keys that enables you to sign transactions for later publishing on the blockchain.
Your wallet file, ie. your private keys or the seed from which the private keys are derived, is what you want to keep safe.That's why the blockchain can be stored on an online device (well, it has to be an online device by necessity, as it has to be connected to other nodes to stay up-to-date) while your private keys should be stored on an air-gapped, offline device.
That's why with Armory you usually have a watch-only wallet that is connected to the internet (the one syncing with the blockchain) and an offline-wallet installed on a separate, air-gapped device that doesn't require the blockchain (the one you use to sign transactions with). Hardware wallets are basically the latter, in a more compact form, with the blockchain being hosted on a third party server.
Note that if you run Armory on a single device, without using two separate devices for a watch-only wallet and an offline-wallet respectively, you are effectively running a hot wallet and not using Armory's full security potential (ie. cold storage).
