As investors flee centralized exchanges, hardware wallet providers profit.

According to Glassnode, the 2022 bear market was the worst on record. This assessment is supported by events like the war in Ukraine and rising inflation, as well as serious issues at centralized crypto exchanges.

While the bear market has not negatively impacted all players in the crypto ecosystem, hardware wallet providers seem to be profiting from the mass withdrawal of crypto from centralized exchanges.

During the 2018 crypto winter, Pascal Gauthier, CEO of hardware wallet crypto firm Ledger, told Cointelegraph that the company's revenue dropped about 90%. This hasn't been the case this year.

“Every quarter we are doing as much revenue as the whole of 2020, which was a very good year for Ledger. Right now year-on-year we are still up, which tells us that this bear market is different. It’s not a real bear market, but rather a bear market for centralized value propositions.”

Following Coinbase's report of losses, Ledger saw the most units of hardware wallets shipped to date, which further suggested that users are not protected in the case of bankruptcy. "We did $2 million a day in revenue following the release of this report, but it was just a peak because nothing bad actually happened to Coinbase," Gauthier said.

When Celsius froze funds and rumors spread that BlockFi might do the same, Ledger saw a major increase in business. "People were rushing to our products to move their funds to somewhere safe," said Gauthier. Wengroff further told Cointelegraph that Ledger recently formed a partnership with Best Buy, allowing consumers to buy Ledger products directly in-store, which has also boosted sales. "We will launch in 256 more stores this July," she said.

In this bear market, Trezor has also seen an increase in revenue.  Ledger is not the only hardware wallet provider to see such a rise in sales.  Analysts at Trezor told Cointelegraph that they have also witnessed a significant surge of interest in their products.  "People are realizing that keeping their coins on exchanges and with custodians can be very risky," said Josef Tětek, Bitcoin (BTC) analyst at Trezor, "so they are seeking out self-custody options."

Tětek noted that Trezor is urging clients of exchanges and custodians to consider withdrawing their coins into their own wallets, at least for the time being. Meanwhile, he pointed out that the liquidation cascade experienced by centralized lenders and exchanges hasn't fully played out yet.

“As Warren Buffett famously said, we don’t know who’s swimming naked until the tide goes out — and the outflow has only just begun.”

GridPlus, a hardware wallet provider, has seen an increase in sales, which is mainly due to the nonfungible token (NFT) community. Justin Leroux, CEO of GridPlus, told Cointelegraph that the firm has struggled to meet consumer demand recently. They are increasing production to meet that demand.

"The NFT community has been the largest sustained source of growth for us: New users drawn to crypto's application layer need to immediately jump into self-custody to participate in NFT markets since centralized options are not readily available."

The following information is important to know

Mordor Intelligence's research has revealed that the global hardware wallet market was worth $202.40 million in 2020. By 2026, it is projected to be worth $877.69 million, but this amount could change if today's high demand for hardware wallets persists.

Alejandro Munoz-McDonald, a smart contract engineer at Immunefi — a bug bounty platform for Web3 products — told Cointelegraph that although funds are stored in a hardware wallet, they are not 100% secure. He said:

"Users could still fall victim to phishing attacks. They sign a transaction thinking it will do something else, and then their NFT or tokens are stolen. Another attack vector could be through an infinite approval that a user made to a contract that has a critical vulnerability. If the compromised contract has permission to transfer your funds, they're gone."

Ledger and Trezor do a relatively good job of preventing attacks on surfacing a user’s private key, according to Munoz-McDonald. He noted, however, that hardware wallets are still vulnerable to physical attacks. "If an attacker gains physical access to your hardware wallet," he said, "it's game over."

In addition, hardware wallets are also susceptible to data breaches, which enable attackers to access user information. Ledger experienced a breach of data on June 17, 2020, which prompted rival popular hardware wallet provider Trezor to issue the coupon code for people who wanted to move funds from Ledger to Trezor.

Munoz-McDonald still encourages users to self-custody their funds, noting that a hardware wallet is the best way to do so. "But," he said, "they also need to be educated on phishing schemes and have general online awareness."

Gauthier said that in order to securely self-custody their crypto assets, users must understand how Web3 works. "Web3 gives ownership to users, whereas Web2 doesn't," he said. "Decentralization may seem harder, but there is a price to pay for self-sovereignty."

Gauthier explained that while some crypto investors may find it easier to purchase and hold cryptocurrency through centralized exchanges, there could be fake underlying sentiments that are hard to initially catch. "No one reads the fine print associated with these exchanges, therefore no one understood the Celsius business model to begin with." Scams are generally easy to use, so users need to do more due diligence," he said.

In the wake of growing interest in hardware wallets, a number of providers have begun to increase their efforts to educate their users. Adam Lowe, the creator of Arculus — a cold storage wallet solution — told Cointelegraph that it has become clear that there are strong forces driving the need for hardware wallets.

Because of this, he believes that first-time crypto users should evaluate hardware wallets based on best-in-class security features and ease of use. “If it looks too complicated to use, you will either stop using it or worse, lose access to your crypto," he said. To help users navigate this, Lowe mentioned that Arculus features an extensive FAQ page along with how-to-videos to help users get started.

The Metaverse's widespread adoption is necessary for blockchain to be effective.

Leroux also noted that the most effective protection is awareness. According to Leroux, the main attack vectors for hardware wallet users are social engineering and phishing attempts rather than technical approaches. "While we have seen browser extension scripts that steal user wallets, it's much more common to see users lose funds because of fundamental mistakes like improperly storing their seed phrase or being tricked into sharing it," he said.

Despite the fact that some of this may sound discouraging, it's important to stress that many providers offer 24/7 support centers as well as educational content. It is also worth noting that both Ledger and Trezor wallets allow users to regain access to their wallets by using another hardware wallet. This feature can be extremely helpful if a user loses or has their wallet stolen. If this were to happen, a user could recover their funds on another Ledger, Trezor or SafePal hardware wallet.

In an interview with Cointelegraph, CEO of SafePal Veronica Wong said that the firm's emphasis is on keeping private keys safe and has seen a spike in business over the past 30 days due to troubles at the centralized crypto company.

"As crypto adoption and user base continue to increase, decentralized wallets will become the most important blockchain gateway for new users. Long-term, wallets could even become an on-chain identity manager, protecting all your on-chain data and authorizations."

Growth is accommodated 

Despite the risks, the phrase "Not your keys, not your coins" has become more widespread in the crypto community than ever before. "The current difficulties of accessing crypto on exchanges emphasize the need for safe ownership of your private keys," Lowe emphasized.

To meet the demands of a sudden increase in users, hardware wallet providers are developing new products and ensuring that existing features are meeting market needs. For example, Arculus recently announced NFT support and WalletConnect integration, which allows consumers to browse NFTs and DApps all within the Arculus ecosystem.

Ledger has been focusing on evolving its products for Web3, as it just announced "clear signing" technology for NFTs. The Ledger Nano S Plus was designed with NFT collectors in mind, and although the clear signing functionality was officially implemented during "Ledger Op3n", which took place in New York on June 22 this year, Gauthier explained that this feature was not created specifically for the device.

"No one is doing clear signing for NFTs - everyone is just sending NFTs blindly left and right, which is a terrible thing to do," he said. Clear signing aims to provide all the details on a transaction. In addition, Gauthier noted that hardware wallet providers should focus on certain features such as bigger screens, more memory, and additional connectivity.

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To ensure that NFTs can flourish, Tětek mentioned that Trezor is exploring ways to implement Lightning Network capabilities for its users. This will make Bitcoin transactions faster and cheaper, ultimately making it easier to use as a means of payment.

The need for crypto investors to take personal security more seriously is the basis for the recommendation that they store their funds in wallets. "If you're using centralized exchanges exclusively, you're not using crypto," Leroux said.