Topic: What exactly is mainly stored on a hardware wallet? - page 2. (Read 343 times)

When you press the "create new wallet" button on your HW, the device has collected 128 - 256 bits of entropy from various sources. Imagine a sequence of 0s and 1s.

Then the entropy is hashed and the first 4 - 8 digits (checksum) are appended to the initial checksum.

Then the sequence you have is split into 12 - 24 smaller sequences of bits, of 11 digits each.

Each of these subsequences is converted to a decimal number.

Each of these decimal numbers corresponds to an english word in the BIP-39 dictionary (which is the recovery phrase you refer to above).

Finally, the seed words, plus some salt (the word "mnemonic" + an optional passphrase) is stretched through the PBKDF2 function and a 512-bit seed is produced.

This seed produces the wallet (EDIT: and is stored in the device).

Note: as you can see, if 2 people have the same set of words, they can produce the same wallet, unless they have set an optional passphrase on the last step.


Now, to answer the question:

BIP-39 is a standard that is used to facilitate people when they want to recover their wallet. How? It is (as I explained above) a representation of the initial entropy.

If you wanted to produce the same wallet without a backup of the entropy, it would mean that you have produce the same entropy randomly. It will never happen - it is infeasible.

So the wallet offers you 12 - 24 words to help you recover the wallet in any other device you want, provided that it uses BIP-39.

The HW can have a state, meaning it can remember the private key, but if it gets destroyed, for example, how would you recover the wallet?

I know you think that you could hold a backup of the private key instead of the words, but trust me, keeping track of 64 Hexadecimal characters is much more difficult than keeping track of 12 english words.

This answers the OP question. But on hardware wallet, seed phrase are written down for backup, not the private key. I know you know this, but it is worth mentioning. The seed phrase can always generate and regenerate the private keys.

I think OP do not need to ask this kind of question because it is not hard to know the reason for the seed phrase backup. On most wallets, the reasons are even stated, that seed phrase are used for wallet recovery.

What is stored on your hardware wallet is the private key or the seed phrase, which is needed to sign a transaction. Just like you have stated a transaction must be signed by the private key and that is what the hardware wallet keeps, the remaining process are done by a software wallet. The reason for a hardware wallet is just to prevent your private key or seed phrase from coming online like the software wallets. The hardware device is prevented from an internet connection which is the first point of exposing your private key or seed phrase

The hardware wallet is referred to as an offline wallet for This purpose, also you can use the software wallets too as an offline wallet by using it offline and never allowing the device to come online. You can then have a watch only wallet on another device for broadcasting the transaction. So basically what the offline wallet does is to use this stored private key to sign the transaction.

Yes the private key is needed to be written down and stored (advisable offline), because you don’t know what is going to happen to that hardware wallet, it can mistakenly get damaged, get lost or gets stolen. With a seed phrase or Private key elsewhere you can simply just recover everything back on another wallet that supports the hardware wallet’s seed phrase formats.

Even after a few days of study, there are still some concepts that I still don't fully understand and some that I find difficult to grasp. For that reason, I've chosen to submit such concepts here in order to receive additional clarity. As far as I can tell, your cryptocurrency is stored on the public ledger under a public key; your hardware wallet holds your private key, which is used to verify that you are the owner of the public key or wallet; and you set a password to secure your hardware wallet something that is easier to remember than a complete hash of your private key.

I find it confusing that when you create a hardware wallet, you are required to write down a 12-word "recovery phrase" in order to restore your wallet in the event that it is misplaced.
What makes this any different from simply leaving your wallet at home and writing down your private key on the same piece of paper? What use does a hardware wallet serve if you have to write down what is effectively your private key anyhow?