Hardware wallet vs software wallet for daily transaction

[bitmover]

You can see all those UTXO from the same address, and you can choose which one you want to spend.

Does it only show UTXOs from the same address, or maybe only from addresses which already fit whichever algorithm you pick? I don't want it to select anything for me, I don't want to have to pick "minimize fees" or "merge coins" - I simply want a list of every UTXO in my wallet with the option to choose the exact ones I want to spend.

Regardless, it's a bit of a theoretical point since I'll never use Ledger Live since it connects to Ledger servers and I don't trust them with my data or privacy one bit.

You can  choose any address or utxo you want.

But you are right about the servers,  you have to use their servers... só you lose privacy compared to electrum

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[o_e_l_e_o]

But you are right about the servers,  you have to use their servers... só you lose privacy compared to electrum

I don't think Electrum is particular private either. In both cases you are connecting to a server ran by a third party who can then see all the addresses you are querying and all the transactions you are broadcasting and then link them altogether.

Ledger will be worse in some aspects, since they can potentially link your address data to some other personally identifying information about you that they store, and they will be able to link all your altcoin addresses too.

Electrum will be worse in some aspects, since you are connecting to many different servers which increases the risk of connecting to a malicious one who is spying on you.

The upside to Electrum of course is that you can point it at your own server (or a specific server ran by someone you trust).

[CounterEntropy]

Given your use case, i.e. daily expenses, both Electrum wallet & Hardware wallet will provide same level of security.

This is not true. A hardware wallet is meant to protect your funds against software attacks. It's much, much more difficult to create malware that steals funds from a hardware wallet than it is to steal funds from a hot Electrum client.

True. But, malware is not the only attack vector that HW needs to withstand. There are other vectors, like compromised RNG, compromised Firmware etc. exists for HW, which is not there for open source SW. So, one can't really say that a hot wallet on HW is more secure than a hot wallet on SW, just because SW is more susceptible to malware attack.

[o_e_l_e_o]

True. But, malware is not the only attack vector that HW needs to withstand. There are other vectors, like compromised RNG, compromised Firmware etc. exists for HW, which is not there for open source SW. So, one can't really say that a hot wallet on HW is more secure than a hot wallet on SW, just because SW is more susceptible to malware attack.

This statement is misleading for a number of reasons.

First, there exist open source hardware wallets. If your argument is that (some) software wallets are better because they are open source, then that argument fails when compared to an open source hardware wallet.

Second, "open source" is not synonymous with "immune to attack". There are plenty of pieces of open source software and open source wallets which have suffered from critical security flaws and vulnerabilities. Even Bitcoin Core has had a number of critical bugs discovered in it, some of which were exploited, such as the value overflow incident.

Third, malware attacks are exponentially more common than attacks which compromise the RNG of a hardware wallet or similar. Can you point to a single example where a compromised RNG on a reputable hardware wallet such as a Trezor or Ledge resulted in loss of coins? Because I can point to thousands of incidents of malware stealing coins from software wallets.

[PrivacyG]

I just found out that they are supporting Coin Control!!

This is amazing and now Ledger Live has every basic bitcoin wallets functionalities. I will try it later.

I remember using their Coin Control feature early last year too, so it has been there for a while already.  But to me, not being able to sign a message is a shame and not being able to label addresses makes Coin Control useless.  When you have 30+ different addresses on the Coin Control list, it becomes annoying and very easy to mess up.

Had they added possibility of running a full node or your own server in combination with Ledger Live, next to features such as message signing and address labels, I could confirm and say it has every basic Bitcoin wallets functionalities.  But with these features missing, no thank you.

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Regards,
PrivacyG

[bitmover]

I remember using their Coin Control feature early last year too, so it has been there for a while already.  But to me, not being able to sign a message is a shame and not being able to label addresses makes Coin Control useless.  When you have 30+ different addresses on the Coin Control list, it becomes annoying and very easy to mess up.

I don't think that coin control is useless because you can't label the address. You can control that in an excel sheet, for example, if you are confused about all your addresses. I am not confused about my addresses and I don't label them.

Had they added possibility of running a full node or your own server in combination with Ledger Live, next to features such as message signing and address labels, I could confirm and say it has every basic Bitcoin wallets functionalities.  But with these features missing, no thank you.

The upside to Electrum of course is that you can point it at your own server (or a specific server ran by someone you trust).

They added this possibility in  "Experimental Features", I just found it out while exploring my software!

https://support.ledger.com/hc/en-us/articles/360017551659-Setting-up-your-Bitcoin-full-node?docs=true

To connect your Bitcoin full node to Ledger Live:

In Ledger Live, go to Settings > Experimental features tab.
Scroll down to find the Connect Bitcoin full node option and click on Connect.
Click on Continue once your full node is set up and fully synchronized.

Edit: Ofc we cant verify if we still have full privacy using this feature, as the software is not open source.

[Pmalek]

...and not being able to label addresses makes Coin Control useless.  When you have 30+ different addresses on the Coin Control list, it becomes annoying and very easy to mess up.

You can always create additional accounts in Ledger Live for different use cases. There are no limits to that as long as an address of 'account 1' was funded before you create 'account 2'. You can have an account just for your current signature campaign. If and when you switch to a new signature campaign, you can create a new account just for that one. You can make one for gambling, another one for trading. Or you can make one for each and every platform you use. Make one for family and friends independent from work and business activities. Mix it up every way you want. It's still not the same thing as labelling addresses, but is ok as a workaround.

[n0nce]

First, think about if you really need to keep $10k on you at all times and can't 'plan ahead' (e.g. transfer some coins from cold storage to hot storage before leaving the house if you anticipate needing more money than usual that day).
In case I needed to have $10k on me in BTC every day, I would use the Foundation Passport, since I can use it with my phone. I wouldn't store amounts of this magnitude in a software wallet.

[Kakmakr]

I am not going to carry around my hardware wallet and then connect that to a notebook or tablet to do daily transactions, when I visit a shop that accepts Bitcoin payments. I will much rather have some online wallet that I can connect with via my phone ..so that I can scan a QR code if the price is displayed with a QR code. 

I see hardware wallets as a secure way to use as cold storage and not a wallet for daily usage. It is also good for online payments when you shop online.... but not really a option for mobility. 

[PrivacyG]

You can always create additional accounts in Ledger Live for different use cases. There are no limits to that as long as an address of 'account 1' was funded before you create 'account 2'.

There is a limit, it is called time!  Adding a single new account takes little to no time but I have had a Ledger with at least 5 accounts before and the initial setup takes a LONG time to find and sync them all up.  Coin Control with address labels is so much easier and does not need time to 'sync accounts'.  It just syncs the balances of addresses of your 'account 1' derivation path.

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Regards,
PrivacyG

[n0nce]

I am not going to carry around my hardware wallet and then connect that to a notebook or tablet to do daily transactions, when I visit a shop that accepts Bitcoin payments. I will much rather have some online wallet that I can connect with via my phone ..so that I can scan a QR code if the price is displayed with a QR code. 

As I said, hardware wallets that are compatible with phones do exist. For instance, Foundation Passport, which uses QR codes is compatible with any smartphone that has a camera (so, all of them). Some others are usable through the USB port of an Android phone or by using NFC / Bluetooth, however that's less convenient (and way less secure!) in my opinion.

If you were to opt for a 'hot wallet' instead, I find your choice of 'online wallet that you connect to via your phone' extremely questionable. I don't think I've even come across an online wallet in.. years, honestly. Just use a hot wallet that stores the seed on-device, but please no online wallet. That's so 2010.

[witcher_sense]

As I said, hardware wallets that are compatible with phones do exist. For instance, Foundation Passport, which uses QR codes is compatible with any smartphone that has a camera (so, all of them). Some others are usable through the USB port of an Android phone or by using NFC / Bluetooth, however that's less convenient (and way less secure!) in my opinion.

You forgot to mention SD cards, which is arguably the least convenient way of transferring transaction data when visiting a grocery store. As for security, I guess SD-cards are less secure than QR-codes but provide better protection than Bluetooth or NFC. Basically, all hardware wallets can be paired with a mobile phone in one way or another, but that doesn't make them suitable for everyday shopping. Carrying around your hardware wallet is still a bad idea. The only use case I can think of where hardware wallets may help is if you're using a mobile phone as your primary means of payment to search for and buy stuff online. When you're shopping online with your phone visiting many websites that can potentially be malicious, it is rational to not hold your keys on the same device you are surfing the Internet. Whenever you want to make a payment, you connect to your hardware and sign a transaction.

[dkbit98]

I am not going to carry around my hardware wallet and then connect that to a notebook or tablet to do daily transactions, when I visit a shop that accepts Bitcoin payments. I will much rather have some online wallet that I can connect with via my phone ..so that I can scan a QR code if the price is displayed with a QR code.  

Nobody said you should carry around  hardware wallet with you all the time.
Keep hardware wallet at home with majority of your coins, and when you need to make transaction transfer smaller amounts to software wallet.
Otherwise, you are risking much more with everything being kept of mobile wallet, that can be stolen, lost and hacked much easier than hardware wallet.
There are great wallets that support QR codes (Keystone, Passport, etc), you don't need to connected them with any other devices, and they are much faster than ledger.

[n0nce]

Basically, all hardware wallets can be paired with a mobile phone in one way or another, but that doesn't make them suitable for everyday shopping.

No, not all can. Especially iOS supports only a very limited number of HW wallets since it doesn't allow to use the USB port.

Carrying around your hardware wallet is still a bad idea.

I'm wondering why you believe it's a bad idea, but if it's for security concerns: losing a HW wallet isn't a big risk if it has a secure element. You get home, restore from seed and send the funds to a new wallet. At that point the HW wallet becomes useless for any finder if he even understands what it is and attempts to crack its passcode.

The only use case I can think of where hardware wallets may help is if you're using a mobile phone as your primary means of payment to search for and buy stuff online.

So you'd argue it's unnecessary if you mainly use a PC? Does this imply you believe it's a good, secure way to store your seed on a PC? I highly disagree. Or do you have a second, airgapped PC next to your main one and transfer UTXOs back and forth when doing daily payments (the topic of this thread)?

Nobody said you should carry around  hardware wallet with you all the time.
Keep hardware wallet at home with majority of your coins, and when you need to make transaction transfer smaller amounts to software wallet.

Another option is to have a HW wallet for on-the-go with less funds on it and one for larger amounts in a more secure location like a safe at home.

[witcher_sense]

No, not all can. Especially iOS supports only a very limited number of HW wallets since it doesn't allow to use the USB port.

I think it mostly depends on what you mean by "pairing." If a hardware wallet can't be connected directly, an indirect connection might help, but it obviously will take additional steps to sign a message safely. For example, I have a software wallet installed on my iPhone, but it doesn't have private keys inside it and only creates unsigned transactions. I also have an offline laptop with Electrum installed, which I use as an interface for signing transactions with a hardware device. After my transaction is signed, I transfer it back to my mobile phone. It is also necessary to have an offline laptop because a hardware wallet can function in hostile environments. That is how a "pairing" may be defined.
   

I'm wondering why you believe it's a bad idea, but if it's for security concerns: losing a HW wallet isn't a big risk if it has a secure element. You get home, restore from seed and send the funds to a new wallet. At that point the HW wallet becomes useless for any finder if he even understands what it is and attempts to crack its passcode.

A secure element hardly protects you from 26$ wrench attacks (inflation-adjusted). Hardware wallets are meant to protect considerable sums, people carrying around considerable sums are worth target to attack and rob. You are going to have a hard time convincing a robber that you use a hardware wallet just to make very small purchases.

So you'd argue it's unnecessary if you mainly use a PC? Does this imply you believe it's a good, secure way to store your seed on a PC? I highly disagree. Or do you have a second, airgapped PC next to your main one and transfer UTXOs back and forth when doing daily payments (the topic of this thread)?

I consider PC even less secure than the mobile phone when it comes to keeping private keys securely.

[LoyceV]

I consider PC even less secure than the mobile phone when it comes to keeping private keys securely.

For Windows, you're probably right. But getting physical access to that PC is a lot more difficult than getting physical access to your phone. It got me curious how many phones get lost:

People aged between 25 and 34 have on average lost three smartphones in their lives up until now, which works out at losing one every three years if you happen to be 25 and received your first phone at the age of 16.

That's far more than I expected (and quite hard to believe).

I don't use strong security on my phone (because it's annoying), so my solution is avoid adding much value to it.

[o_e_l_e_o]

For example, I have a software wallet installed on my iPhone, but it doesn't have private keys inside it and only creates unsigned transactions. I also have an offline laptop with Electrum installed, which I use as an interface for signing transactions with a hardware device. After my transaction is signed, I transfer it back to my mobile phone. It is also necessary to have an offline laptop because a hardware wallet can function in hostile environments. That is how a "pairing" may be defined.

But the discussion here is about daily spending - no one is going to carry a phone, a laptop, and a hardware wallet in to a shop and then set up the laptop on the cashier's desk so they can sign a transaction. Such a set up is suitable for cold storage you interact with at home, not for a daily spending wallet.

Hardware wallets are meant to protect considerable sums, people carrying around considerable sums are worth target to attack and rob. You are going to have a hard time convincing a robber that you use a hardware wallet just to make very small purchases.

I agree with you to an extent, but conversely, if a $5 wrench attack is in your threat model then spending bitcoin in public at all makes you a target. Whether your use a mobile wallet or a hardware wallet, someone can attack you and coerce you to reveal the locations of your seed back ups or how to access your other wallets. It all comes down to whether you think you can convince the attacker that what you have on your mobile wallet is all you own, versus the plausible deniability you might get with using passphrases on a hardware wallet.

[witcher_sense]

But the discussion here is about daily spending - no one is going to carry a phone, a laptop, and a hardware wallet in to a shop and then set up the laptop on the cashier's desk so they can sign a transaction. Such a set up is suitable for cold storage you interact with at home, not for a daily spending wallet.

I was merely trying to make my point about hardware wallets being an inconvenient way to make small everyday purchases. The fact that not all hardware wallets can be directly paired with a mobile device only makes my point stronger. People making shopping in a grocery store want their payments to be fast, even instant, which a hardware wallet is not suitable for. I'd instead use a software wallet with lightning network support which allows for instant payments and requires no time-consuming interactions and manipulations to prepare your wallet for making these instant payments.

spending bitcoin in public at all makes you a target.

Precisely, it does make you a target; the situation gets worse as bitcoin grows in value and recognizability. This is a downside of being your own bank.

Whether your use a mobile wallet or a hardware wallet, someone can attack you and coerce you to reveal the locations of your seed back ups or how to access your other wallets. It all comes down to whether you think you can convince the attacker that what you have on your mobile wallet is all you own, versus the plausible deniability you might get with using passphrases on a hardware wallet.

True. It also comes down to how high or how low the time preference of the robber is. A robber that is more patient and persistent in his endeavor to find out where your funds are is going to be more successful and wealthier than his colleagues hunting for hardware wallets only.

[n0nce]

I'm wondering why you believe it's a bad idea, but if it's for security concerns: losing a HW wallet isn't a big risk if it has a secure element. You get home, restore from seed and send the funds to a new wallet. At that point the HW wallet becomes useless for any finder if he even understands what it is and attempts to crack its passcode.

A secure element hardly protects you from 26$ wrench attacks (inflation-adjusted). Hardware wallets are meant to protect considerable sums, people carrying around considerable sums are worth target to attack and rob. You are going to have a hard time convincing a robber that you use a hardware wallet just to make very small purchases.

Okay, but nothing protects you against that attack. Not a software wallet, not a hardware wallet, not a real wallet and neither does an offline wallet at home on airgapped laptop. If someone wants to mug you, they will. Doesn't make the wallet less suitable 'for daily transactions' (the topic we're discussing about here).

So you'd argue it's unnecessary if you mainly use a PC? Does this imply you believe it's a good, secure way to store your seed on a PC? I highly disagree. Or do you have a second, airgapped PC next to your main one and transfer UTXOs back and forth when doing daily payments (the topic of this thread)?

I consider PC even less secure than the mobile phone when it comes to keeping private keys securely.

Ok then we're on the same page on this one.

As for Lightning: yes, that's the only reason I'd use a hot wallet for daily transactions. If I want it to be the absolute fastest (in my humble opinion required for in-store purchases) and cheapest to send with the least amount of hassle, nothing beats it. It's not very secure if the device is compromised though (talking about security = software attacks / viruses).
So for any significant amount I'd just grab a hardware wallet that works with my phone. Sure, not all do, but what kind of argument is that? Only because not all HW wallets work with phones, you should instead use an airgapped laptop to sign the transactions? Just get one that works with your phone...

[dkbit98]

No, not all can. Especially iOS supports only a very limited number of HW wallets since it doesn't allow to use the USB port.

I didn't know about this, but can't you just use simple usb adapter and connected hardware wallet with your phone.

Another option is to have a HW wallet for on-the-go with less funds on it and one for larger amounts in a more secure location like a safe at home.

You could, but I don't see any point in doing that for smaller transactions, and you will only increase transaction fees.
Maybe fees are not such a big issue now but I think we all remember the times when we had to wait for weekend to get lower fees.

I consider PC even less secure than the mobile phone when it comes to keeping private keys securely.

I would not agree with that statement in general, computers can have much better encryption protection and they don't have backdoors like smartphones.
Like it or not smartphones are always connected with network or internet, and it's really easy to get totally airgapped offline computer.
Is it easier to use smartphones than laptop computer for making secure transactions? Not for me for various reasons, but other may disagree with me.