A significant aspect of the cryptocurrency industry since its inception has been crypto wallets used to store various crypto assets and facilitate trading, swapping, and interaction with decentralized applications (dApps) and other decentralized finance (DeFi) platforms. The importance of crypto wallets cannot be overlooked, and over time, they have evolved into different types, including centralized and decentralized wallets. Regardless of the wallet type, one certainty is that the security of these platforms must be ensured at all times, influencing the design of various wallets. In response to these security concerns, air-gap wallets were created.
Air-gapped wallets are a type of crypto wallet completely disconnected from the internet or wireless networks, such as WiFi. Activities like transferring crypto assets on air-gapped wallets occur offline. However, an intermediary is required to finalize the transaction.
Understanding More About Air-Gapped Wallet
Air-gapped wallets were born out of the need to provide a secure environment for transacting your cryptocurrency without facing the risk of losing to online hackers, or other security risks associated with different wallets.
But how do air-gap wallets work without being connected to the Internet, Bluetooth, WiFi, NFC (near-field communication), or USB drives? It’s simple. But first, you need to know that these wallets come as small devices or computers.
Air-gapped wallets have scannable QR codes, and some have a tiny micro-SD card for storing transaction history that has occurred on the crypto wallet. Remember, air-gapped wallets are a type of hardware wallet — physical devices. However, not all hardware wallets are air-gapped wallets.
Different Types of Cryptocurrency Wallets
To get a better grip on air-gapped wallets, let’s explore the various wallet types that exist, including their subsets. Cryptocurrency wallets fall into two main categories: custodial and non-custodial wallets.
In custodial wallets, users lack control over their private keys, which are essential for executing and validating transactions on the blockchain. Examples include centralized exchanges that manage your cryptocurrency and store your private key on your behalf. The drawback is that users lack control in this scenario.
On the flip side, non-custodial wallets grant users control over their private keys, making them responsible for signing and validating transactions. Typically, these wallets are decentralized, with no central authority other than the wallet owner.
Examples of custodial wallets include Binance, Kraken, and Crypto.com, while non-custodial wallets include Trust Wallet, Ledger Nano S Plus, Trezor Model One, Electrum, and Uniswap Wallet.
A significant difference between both wallets lies in the user experience: custodial wallets offer user-friendly designs and recoverable accounts, while non-custodial wallets have simpler interfaces, potentially requiring some technical know-how. However, since users control their private keys, losing them means there’s no way to access the accounts.
Both custodial and non-custodial wallets have three subcategories and air-gap wallets fall into one of these subsets.
Types of Custodial and Non-Custodial Wallets
There are three subtypes of wallets: software wallets, hardware wallets, and paper wallets. Let’s break this down to understand.
These wallets are application-based and accessible across various internet-enabled devices, including mobile phones, desktops, and tablets. Software wallets can be either custodial or non-custodial. They facilitate various operations such as buying and selling crypto assets or connecting with decentralized applications.
This type of wallet requires a physical device for use, often in the form of a USB or other physical devices. Examples include Ledger and Trezor. Hardware wallets are considerably safer compared to software devices, which face the risk of loss due to potential compromise by hackers. They are less interactive than software wallets and require some technical knowledge for utilization. Hardware wallets are non-custodial, as users have control over their private keys. Air-gapped wallets, a subtype of hardware wallets, come in USB or other devices that are disconnected from the internet.
This subgroup of wallets has the private key embedded in a piece of paper with QR codes. To authenticate transactions, scan the QR code on paper. However, The downside to these wallets is that are easily damaged due to their design and require appropriate storage conditions.
Now that we’ve established what cryptocurrency wallets are and how air-gapped wallets are examples of noncustodial hardware wallets, let’s go deep into how air-gapped wallets function.
How Air-Gapped Wallets Works
Air-gapped wallets operate through computer-based software. This software is connected to the wallet’s QR code or micro-SD card. The functionality involves utilizing a partially signed transaction, the specifics of which depend on the type of cryptocurrency.
For Bitcoin and Ethereum wallets, Partially Signed Bitcoin Transactions (PSBTs) and Partially Signed Ethereum Transactions (PSETs) are used, respectively. When conducting a Bitcoin transaction using a partially signed transaction, the process unfolds as follows:
Begin by creating a partially signed Bitcoin transaction. For this example, we’ll be sending Bitcoin from the air-gapped wallet to a recipient’s Bitcoin address. To initiate the Bitcoin transaction on the air-gapped wallet, start on a device—be it mobile or desktop—that supports a Bitcoin wallet. The user is prompted to input transaction details, including the receiver’s public key (wallet address) and the amount to be sent.
Once these details are provided, the next step is to sign the transaction. However, since the initiating device lacks access to the air-gapped wallet’s private key, a Partially Signed Bitcoin Transaction (PSBT) is created at this point.
The next step involves signing the transaction for approval. To approve, scan the QR codes on the air-gapped wallet. Alternatively, for air-gapped wallets supporting SD cards, you can opt for a different approach. In this case, the transaction occurs via the SD card, registering and storing it there. This method ensures complete isolation from the internet or wireless networks.
The final stage is broadcasting the transaction on the network. This involves recording and making the transaction record available on the Bitcoin network. Upon validation by the miner responsible for network security and functionality, the transaction is marked as successful. Your transaction with the air-gapped wallet is then successfully completed.
Devices Involved in Air-Gapped Wallet
For optimal functionality, an air-gapped wallet typically involves two devices. The first device remains completely offline and the second wallet is used to initiate transactions. Let’s break down how this device works in this scenario.
The Offline Device
The first device remains entirely offline, storing the private keys essential for authorizing transactions. Due to its complete separation from the internet, this device ensures the security of private keys, making it resistant to hacking attempts.
The Online Device
The second device, an online device, is utilized to initiate transactions. This device is connected to the internet and transmits information to the blockchain, where transaction details are recorded.
Communication Between Both Devices Work
- Create a transaction on the online device.
- Transfer the transaction details (often via a USB drive or QR code) to the offline device.
- The offline device signs the transaction using your private keys.
- Transfer the signed transaction back to the online device.
- The online device broadcasts the signed transaction to the blockchain network, finalizing the transaction process securely.
Types of Air-Gapped Wallets
There are different variations of air-gapped wallets currently available. The differences depend on various factors, primarily the type of devices they are compatible with. Now, let’s discuss the three types of air-gapped wallets.
Air-gapped Hardware Wallets
This type of air-gapped wallet is typically built on dedicated hardware devices. They are usually portable with a mini screen for inputting transaction details and buttons—some physical and others touch screen. These devices are isolated from the internet and cannot connect to wireless networks.
Similar to dedicated devices, these wallets involve computers converted into air-gapped wallets to primarily serve as wallets. However, these computers must always be disconnected from the internet and not connected to a wireless network. To sign transactions on these wallets, a USB stick is used. Signed and unsigned transactions are conveyed via the USB stick to the computer hardware wallet.
Like air-gapped computer wallets, these air-gapped wallets are smartphones converted for blockchain transactions as a crypto wallet without internet or wireless network connectivity. When repurposing such smartphones, it’s essential to reengineer them to disable internet and mobile network connections. However, this process requires technical expertise and may incur additional costs.
Pros And Cons of Air-Gapped Wallets
While the primary advantage of air-gapped Wallets is the enhanced security they bring to cryptocurrency wallets, there are also drawbacks to consider. In this section, we’ll explore both.
Pros of Air-Gapped Wallets
Air-gapped wallets are more secure as they are not connected to the internet, making them immune to attacks and reducing the risk of hacking, phishing, malware, and network vulnerabilities.
Private Key Protection
With private keys stored exclusively in the air-gapped wallet, the risk of theft is significantly reduced.
As hardware wallets, air-gapped wallets provide users with complete physical control over their cryptocurrency assets, offering reassurance in terms of security.
Cons of Air-Gapped Wallets
Level of Inconvenience
Using an air-gapped wallet can be challenging due to the cumbersome and time-consuming process of transferring information between online and offline devices.
Risk of Physical Damage or Loss
The use of hardware wallets poses a risk of losing the device, leading to unrecoverable assets if no backup exists.
Technical Knowledge Required
Operating an air-gapped wallet demands technical expertise, particularly in managing information transfers between wallets, making it less user-friendly.
Air-gapped wallet users lack direct access to trade stored crypto assets, presenting a drawback for those requiring frequent transactions.
Trust in Device Integrity
Trust in a secure device is crucial when dealing with air-gapped wallets, especially for air-gapped computers or smartphones. Using a dedicated SD card that supports the air-gapped wallet minimizes the risk of downloading corrupt files during transfers.
Difference Between a Hardware And an Air-Gapped Wallet
While air-gapped wallets are considered hardware wallets, there are distinct differences that set these wallets apart from each other.
- The primary distinction lies in connectivity. Hardware wallets are internet-enabled and require the Internet to function properly. In contrast, air-gapped wallets rely solely on QR codes or USB drives for their operation, indicating that air-gapped wallets are more secure than their hardware counterparts.
- Another key difference is the user experience and ease of use. Hardware wallets are more user-friendly, whereas air-gapped wallets involve a more manual process, requiring additional effort.
- The recovery and backup processes also differ. Hardware wallets offer a simple recovery process if lost, while air-gapped wallets are more complex due to their isolated nature.
- Additionally, the cost associated with both types of wallets can be complex. Hardware devices can be purchased, whereas air-gapped wallets can be set up on existing devices, making cost estimation more challenging.
Examples of Air-Gapped Wallets
This stands out as a leading air-gapped wallet, prioritizing high security by eliminating the need for WiFi, Bluetooth, USB, or networks. Users only need to scan a QR code for private transactions. ELLIPAL Titans feature advanced materials for anti-disassembly and anti-tamper, an interactive interface, auto-self-destruct if tampering is detected, two-factor authentication (2FA) with passwords and pin entry, and a secret secondary wallet option.
This air-gapped wallet supports the management of over 10,000 tokens and NFTs across various blockchains. Compatible with Android and iOS, as well as with MetaMask, WalletConnect, and decentralized apps (dApps), it offers several account management features. The inclusion of comprehensive security measures makes ELLIPAL Titan a robust choice for safeguarding digital assets.
SafePal S1 line
This air-gapped wallet takes cold storage a step further, providing you with fully decentralized control and 100% ownership of your wallet. It incorporates an anti-tampering self-destruct mechanism without Bluetooth, WiFi, NFC, or USB connections, ensuring 100% security. Key features include support for over 100 blockchains, unlimited cryptocurrency storage, a 400 mAh battery life, a display screen, and a more affordable price compared to other hardware wallets such as Ledger Nano S, Ledger Nano X, and Trezor One. It is available in various countries, and its popularity can be attributed to the influence of Binance Lab, which was responsible for its development.
This air-gapped wallet, developed by Discus Fish and Changhao Jiang, prominent figures in the crypto industry, was formerly known as Cobo Wallet. It stands as one of the most widely utilized cryptocurrency hardware wallets. Key features include QR code scanners, a battery pack, an SD card slot, multiple backup options, a seed phrase booklet, and fingerprint security. The platform supports over 5500 cryptocurrency assets across various blockchains.
This air-gapped wallet takes the user security process to the next level. AirGap users download AirGap Vault, which operates on an offline smartphone, serving as a secure store for private keys. Simultaneously, they have AirGap Wallet for initiating transactions in an online environment without direct access to their private keys. Communication between both devices is facilitated through QR code scanning. Integrating AirGap Vault and AirGap Wallet delivers a smooth trading experience, particularly beneficial for users less familiar with the cryptocurrency landscape.
Air-gapped wallets are essential innovations undergoing improvement and are crucial for enhancing security and safety in the cryptocurrency industry. Despite the less-than-optimal user experience, the enhanced security justifies this trade-off.
Gradually, as innovations permeate the cryptocurrency space, the user experience is bound to improve, ultimately bridging the gap between the online and offline worlds seamlessly.
Frequently Asked Questions (FAQs)
What Types of Devices Are Involved in Air-Gap Wallets?
Two devices are typically involved: an offline device that stores private keys and an online device used to initiate transactions. The devices communicate by transferring transaction details between them via methods like USB drives or QR code scanning.
How Do Air-Gap Wallets Work?
Air-gap wallets, typically hardware wallets, use computer-based software linked to QR codes or micro-SD cards. The transaction process involves creating partially signed transactions, approving transactions via QR codes or SD cards, and broadcasting the signed transactions to the blockchain.
What Are the Cons of Air-Gap Wallets?
Drawbacks include inconvenience in the user experience, the risk of physical damage or loss of the hardware wallet, the requirement for technical knowledge, limited accessibility for frequent transactions, and the need for trust in device integrity.
Air-Gap Wallet vs. Hardware Wallet Which is Better?
Look for resources comparing air-gap wallets with traditional hardware wallets. Understand the differences in connectivity, user experience, recovery processes, and costs associated with these two types of wallets.
What Are the Pros of Air-Gap Wallets?
The benefits include improved security, protection of private keys, physical control over assets, and immunity from online hacking, phishing, and malware. Air-gap wallets provide reassurance for users seeking high levels of security.
Why Were Air-Gap Wallets Created?
Air-gap wallets were created to address security concerns associated with online hacking and other risks posed by various types of cryptocurrency wallets. They provide a secure environment for cryptocurrency transactions.