19th May 2023 > > Ledger.

tl;dr

Ledger has announced new functionality for the Nano X about which the crypto community is a little displeased.

Market Snap (at time of writing)

Market Wrap

That’s a full week of trading in a narrow range with the obvious psychological boundaries of $25k and $30k playing their part in restricting price movements to between $26.5k to $27.5k.

The outcome of the stand-off over the US debt ceiling can only be good for cryptos. It is overwhelmingly likely that agreement will be reached, the ceiling will be raised, the US government will continue its path of reckless spending (supported by all political parties), and dollar printing will be back leading to further devaluation against hard assets.

Alternatively, the US debt ceiling is not raised, and the world’s financial system is thrown into turmoil, proving once more the value of cryptos, though this really would be a terrible situation for everyone.

Curious Cryptos’ Commentary – Ledger Nano

Ledger has long been one of the leading manufacturers of hardware wallets.

There are many options for storing your cryptos. Personally I have some held across a few different centralised cryptocurrency exchanges. These holdings are relatively small, speculative, and sometimes I trade them daily.

I have some cryptos in an online MetaMask wallet, not secured by a hardware wallet. Again, the value is small but if you want to be nimble in the DeFi (decentralised finance) world, a hot wallet gives you the facility of almost instantaneous trade execution, which can be important.

The bulk of my crypto holdings are accessed using a Ledger Nano X, though I recognise that some are worried about its Bluetooth functionality and prefer the earlier Nano S.

If you are unfamiliar with Ledger Nano its core concept is that you sign transactions using your private key within the device, and the resulting hash is broadcast to the network. Your private key never leaves the device, and, to date, one has never been hacked, in contrast to its primary competitor Trezor (https://www.curiouscryptos.com/post/27th-january-2022-hardware-wallets-yield-farming).

Cold wallets are secured by a PIN code. Forget that code three times and your Ledger Nano wipes itself of all data.

To reset your Ledger Nano (or to replace it if you have lost it/broken it/had it stolen from you by someone who is soon to be your ex-wife) you need the private key.

The private key is a 24-word seed phrase that is translated into a long unintelligible combination of letters and numbers. Anyone with access to your private key has access to your cryptos. That does not mean they own your cryptos (if someone has the PIN to your banking app, they don’t own the cash in your current account though someone forgot to tell my soon to be ex-wife this fact) but it does mean they can transfer cryptos to another wallet. Which pretty much amounts to the same thing.

Lose your private key and you lose access to your cryptos forever. And this is a major stumbling block on the path to full crypto adoption.

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There are plenty of strategies for keeping your private keys safe and secure.

One common option is to split your private key into two or more parts and store these parts separately from one another. In that way, even if someone stumbles across one of them, that information is useless without the other parts.

One obvious mitigating idea is to have multiple Ledger Nanos so that even if you lose one you have a back-up plan.

Some like to store their private keys in an encrypted file on a computer that is never connected to the internet. The chap in Wales who threw out his hard drive which has the private key to several hundred million dollars’ worth of cryptos can testify that this is not a fool proof solution.

And there are plenty of other ideas though all have their benefits and drawbacks.

To address this issue Ledger have announced a new solution – Ledger Recover.

Available only on the latest versions of Nano users can opt in (at $9.99 a month) to have their private key split into three parts, encrypted, and then stored separately at Ledger itself and two other companies – Coincover and EscrowTech. In the situation that you lose access to your Ledger Nano, your private key can be reconstituted from the three separate parts after proving your identity.

The motivation for this feature is to help reassure crypto users that their funds are safe. It is estimated that up to 6 million BTC are inaccessible forever because the private keys have been lost. That’s nearly 30% of the total of 21 million that will ever be mined so this issue should not be underestimated.

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There has been an outcry from certain sections of the crypto community.

A centralising feature like this is in breach of the original ethos and aims of Satoshi Nakamoto to build a trustless, decentralised financial system.

There are issues of security of your keys, though whether those issues are greater than the current ones can be debated.

With regards to the ethos point, I am a pragmatist. To achieve wholesale adoption of cryptos will require custodial solutions in a centralised form. The maxis don’t like that, but it’s a fact.

With regards to security, that depends on your current method of storing your private keys, but I suspect it is a whole lot safer than the strong box you have under the creaky floorboard that has obviously been removed and replaced.

But I still feel a little uneasy about this development. If you update to the latest firmware that update will include the facility to transmit your private keys to a third party even if you do not opt into Ledger Recover. That’s a big deal, and I am not convinced it is a smart move.