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Hardware wallets aren’t safe? Decoding Ledger’s PR disaster

Safekeeping Crypto

26 May 2023

Hello,Bitcoin (BTC) is trading just about $26,000 after a scare earlier this week with its dominance above 46%. The crypto market continues to give mixed signals with both the bulls and the bears confident that they will eventually win in the short-term.

In the long term though, all crypto investors will be profitable provided, they 1) cost average their positions and 2) store them safely. We know you are confident of doing the cost average bit well. What about storage though?Today’s hot take is related to this topic – we analyse what can go wrong with crypto storage and why Ledger’s PR disaster is worth decoding.

Top-3 stories of the week:

1

Rajeev Chandrasekhar, Union Minister of State for IT, pledges support for crypto and web3.

is to provide a secure and reliable online environment for all digital projects, emphasizing the importance of ensuring a safe internet experience

2

. The company’s goal is to invest in startups working to “advance the cutting-edge infrastructure needed for a multi-chain, multi-currency, and multi-platform world,” with a particular focus on Web3 and decentralized platforms.

3

. Indian crypto exchanges and a public policy advisory firm have separately submitted proposals to the government to restore access to the national Unified Payments Interface (UPI) for crypto firms.

The newsletter is put together by Giottus Crypto Platform and The News Minute’s Brand Studio. You can read all the previous issues of Cryptogram here.

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WEEKLY MACROS

  • Total crypto market cap - $1.10 trillion - DOWN 1.8%

  • Bitcoin price - $26,435 - DOWN 1.6%

  • The dollar index (DXY) - UP 104.1 - 0.6%

  • Bitcoin Dominance - 46.2% - DOWN 0.2%

  • Crypto Fear and Greed Index - 49 - the market is in neutral condition

ICO CALENDAR

THE HOT TAKE

The mirage of safe crypto storage

Stacking Bitcoin over the years is quite easy for a crypto investor. Even easier is losing access to them! Consider this stat – more than 6 million BTC is termed to be lost forever (

).

One of the key tenets of crypto is that investors can own and store the assets in their custom wallets without any dependency on a third party (company, government etc.). This led to the adoption of hardware wallets where investors can store crypto with a 12 or 24 word seed phrase as the key to accessing the assets. Ledger, Trezor, and SafePal are the popular brands that do hardware wallets.

Of course, seed phrases can be lost too. If early investors, who are supposedly the geekier kinds, have lost access to their Bitcoins, how do we expect millions of users to hold without losing them?

So Ledger had a plan…

Ledger recently announced an optional key recovery service – Ledger Recover. It divided a user’s seed phrases into three parts (encrypted), held by three entities – Ledger, CoinCover, and EscrowTech. Investors can avail it as a backup to access their wallet by paying a monthly subscription fee of $9.99. Sounds great, right?

…but users weren’t amused

A

raised alarm as users read through the text of the latest firmware updates to their Nano X devices and labelled it as “a disaster waiting to happen.”

CZ, the CEO of Binance, also seemed puzzled like most of us.

Source: Twitter

Aside from terming this a money-making initiative, users were left wondering why they needed hardware wallets anymore. The fundamental idea of storing crypto in a hard wallet is to keep your assets secured and that no company can access them with or without your permission.

Permissions are why hardware wallets are preferred over software ones. Software wallets are more prone to online attacks as users sometimes give transfer permissions without their knowledge – this is not possible in hardware wallets.

Then this tweet happened –

One of the support agents of Ledger tweeted that it is technically possible for the company to write a firmware that could extract users’ private keys, while answering to a question raised by one of the users in regards to the newly introduced recover service. Whoa!

This started a frenzy where many users raised concerns over security of their funds held in Ledger devices.

Dousing the fire

Ledger was quick to react, after the launch proved to be a massive PR disaster. The company insists that its new Recovery tool doesn't compromise wallet security while suspending its launch. Ledger’s CTO, Charles Guillemet,

in a new Twitter thread that the wallet’s operating system (OS) requires the consent of the user anytime “a private key is touched by the OS”.

What does this mean for you?

As crypto adoption grows, storage of crypto will be the key to ensuring that a hard-earned portfolio is not lost. All companies, including hardware and software wallet providers, are trying to benefit from this need. Some services, like the Ledger’s recovery tool, are maybe just ahead of its time. While we don’t doubt their intentions, sentiments and how people perceive a brand often play a key role in welcoming new launches.

Already, crypto exchanges play a major role in storing assets globally. However, registered and geo-restricted ones will gain more trust in the future as exchanges work with local Governments by enabling smooth KYC and due-diligence of their investors. In India, registered crypto platforms come under PMLA and are obligated to store your assets safely, similar to traditional banks. If you can trust and store your assets in hardware wallets while understanding the risks, we encourage you to do that. Else, leave the custody to a top Indian platform and only worry about building the portfolio well.

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If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.