Cool storage. What the Ledger cryptocurrency wallet scandal will lead to

Cool storage. What the Ledger cryptocurrency wallet scandal will lead to

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Author: Robert Strickland (crypto-journalist)
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Cool storage. What the Ledger cryptocurrency wallet scandal will lead to
Experts talked about the consequences of the introduction of a controversial update to a popular device and how the approach to "cold" storage of cryptocurrencies may change

French producer of popular cryptocurrency wallets Ledger postponed the launch of the scandal-plagued Ledger Recover service due to criticism from the crypto community. Last week, the company announced a service to recover access to crypto-assets on the wallet, in which the secret phrase from the wallet (seed phrase) is divided into three parts and sent for storage to Ledger partner companies. Device owners will then be able to recover these phrases in case they lose them by going through a verification process.

In response, Ledger has faced a barrage of criticism. Despite the fact that connection to the new service will be voluntary, in addition to the obvious security risks, users were outraged by the idea that wallet keys could be disclosed to anyone other than their owners and basically leave the device. Such a scenario in itself runs counter to the idea of cold storage, and Ledger devices have always been promoted by the company as being best suited for just that purpose.

The company released a controversial post on Twitter, writing that its developers have always had the ability to add firmware to the device, allowing them to unload user keys so that they would never know about it. This statement seemed to be blatantly mocking to users and provoked an even greater stream of criticism against the company. The publication was quickly deleted.

On Monday, May 22, on the podcast What Bitcoin Did, Ledger CEO Pascal Gauthier admitted that authorities would be able to gain access to the private keys of users of hardware cryptocurrencies that would be connected to the Ledger Recover service through the courts. The whole situation created a resonance in the crypto community and provoked questions about the security of hardware wallets in principle. Ledger devices are popular and have always been positioned as one of the most secure and private ways to store cryptocurrencies.

"Sacrificing Ideology."
"This is a classic example of how a company's reputation can almost be nullified by one careless move. People who use hardware wallets tend to be particularly sensitive about the privacy of their keys, and of course, this option cannot suit them," argues Sergey Mendeleev, head of InDeFi Smart Bank.

According to the expert, this would set a telling precedent for other manufacturers of hardware wallets. But taking into account the fact that losses of funds due to loss of seed phrases "amount to thousands", such service of access recovery may well take place provided that the keys are reliably encrypted using proven algorithms and open-source software, admits Mendeleyev. Ledger representatives also said they intend to make the Ledger Recover source code publicly available to allow users to verify that there are no "backdoors."

The incident "definitely paid attention to other developers of devices", but its negative impact was limited to a narrow circle of technically savvy users, says co-founder of ENCRY Foundation Roman Nekrasov. Ledger products are aimed at a wide range of users, many of whom have only recently become familiar with cryptocurrencies.

"They are more interested in convenience and simplicity. Such nuances as the contradiction to the very idea of cryptocurrencies, where the responsibility for the safety of funds lies entirely on the owner, are of little interest. They have not come into contact with this yet," the expert comments. - Their interaction with digital services is based on experience with traditional services, in which the responsibility for the safety of funds is partially delegated, for example, to the same bank.

Businesses will not always follow the original ideology of the segment in which they are built, even if it was originally created for that purpose, comments crypto-expert and author of GFiS Channel telegram Taisia Romanova. Providing users with solutions to integrate cryptocurrency into traditional spheres, any business will face the attention of regulators, and will most likely have to sacrifice ideology in matters of survival. Of course, this will always be met with criticism from the community. Such decisions are the inevitable consequences of the widespread spread of cryptocurrencies, the expert said.

"This is not the most popular point of view in the crypto environment, but many people forget about it. By no means everyone can be a revolutionary, some just want to provide a quality service. In protection of Ledger, they notified about the service officially and in advance, instead of putting it before the fact after the relevant precedents, leaving users to choose," Romanova adds.

 

How cryptocurrencies will be stored
For the mass introduction of cryptocurrencies, we need convenient and simple mechanisms for their storage, said Nekrasov. "There is little that can be compared to hardware wallets. I believe that the idea with Ledger Recover will still be implemented, perhaps it will even be offered by default," the expert admits. - But it can always be abandoned, otherwise, hardware developers will lose the audience of tech-savvy users.

In the future there will probably be some variants of cold storage of cryptocurrencies, up to biometric remote storage with access through iris scanning or fingerprints, Mendeleev supposes. On the one hand, it excludes unauthorized access to the assets, on the other hand, it prevents loss of access to the wallet. Combined with crypto-asset inheritance options under development, this should become mainstream when cryptocurrencies are widespread among people who are not well versed in the principles of cryptography, the expert believes.

"The industry provides solutions and developments for any cryptocurrency fan - both those who want freedom and decentralization and those who want protection and convenience," Romanova believes. In her opinion, cold storage of cryptocurrencies will remain relevant in any case, and ideologically inclined users will even increase their need for it. Regulators will try to prevent it because it violates their interests in controlling users' funds and actions. But such opposition is "also a kind of norm, which has been and will be in history.

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