The role of a hardware wallet is to protect your private keys from compromission. However, it is still necessary to observe some basic security principles in order to avoid any loss or hacks.
Security of the recovery phrase (24 words)
When initializing for the first time a hardware wallet, you will be prompted to write down 24 words on a paper. The 24 words are a human readable version of your seed (from which all your private keys are derived), and can be used to restore access to your crypto assets on another Ledger device (or a compatible one).
Anyone getting access to these 24 words would get immediate access to your assets (the PIN code is a protection related only to your device, and has nothing to do with your recovery phrase).
Therefore, it is of the upmost importance that you secure correctly these 24 words.
- never take a picture of your recovery sheet (as it would go in the cloud and could be accessible to hackers)
- never enter your 24 words on any computer or smartphone
- keep your recovery sheet in a safe place, protected from light, humidity and fire
Additionally, it is critical to make sure that you have generated yourself the 24 words. Never, ever, use a preconfigured device. Never, ever, use a set of 24 words which has been given to you by a third party. The basic principle is that you must be the only one in the world to have knowledge of your 24 words.
Security steps to verify your receiving address
Your hardware wallet requires a software interface on your computer to interact with you and access the internet (so it can compute your balance, get your transactions history, etc). It is very difficult to verify the integrity of the software on your computer, and therefore you must act on the principles that what you see on your screen could be compromised.
When you need to see your receiving address (so you can be the recipient of a payment), you must take extra steps to ensure you are not victim of a man of the middle attack. An attacker could be in control of your computer screen and show you a wrong address which would make him the beneficiairy of any transaction sent to it.
You must verify the receive address by displaying it on your device.
On the bottom right of the receive window, you have a "monitor button" which will show the recipient address on your hardware wallet. You must make sure it is the same than the one displayed, and also make sure this is the address you will ultimately send/paste/scan on the target application/service. MyEtherWallet also propose this function.
If you are using a software wallet which doesn't propose this feature, we recommend to send a small amount first, and make sure that you have properly received it (verify that your balance has been credited). This test should ideally be done on another computer. It is ok to reuse the address that you have just verified (you will see a new address on the receive windows, this is the normal way Hardware wallets are working).
Security steps to verify the beneficiary address
When you wish to send a payment to a third party, you will usually get the recipient address on a web page or through an email/messenger service. A trivial attack for a malware would be to replace this address by one of its own. Some malwares are simply monitoring the clipboard to replace the address you have just copied by a compromised one.
Always verify the beneficiary address on the device (this is enforced by pressing a confirmation button), but also always double check it using a second channel. For instance, request the address to be sent by SMS, or another messenging app. If you are depositing on an exchange, send first a small amount and check that it arrived properly.
A hardware wallet ensures the protection of your private keys by providing you with a full isolation against the internet (the keys are never "hot", i.e. online, that's why it's often refered as "cold storage"). However, this is not a silver bullet against all possible attacks and you must always verify and double check everything as explained above.
With great powers comes great responsibilities. Being your own bank is not trivial and requires discipline. Using a hardware wallet doesn't make you invincible. Use common sense. Don't trust, verify.