Hardware wallet provider Ledger has faced criticism for its new backup service for the Secret Recovery Phrase in its cryptocurrency wallets. The new service, called “Ledger Recover,” allows users to store their seed phrase with cloud providers for easy access in the event of losing their hardware wallet. However, this contradicts the security aspect of bitcoin and the privacy of users, as cryptocurrencies do not lie on a computer or smartphone but are referenced via a private key on the blockchain, which could be exploited if the seed phrase is stored on a third-party server.
A hardware wallet is a physical device designed to securely store the private keys of cryptocurrencies offline. It generates and stores the private keys offline and allows transactions to be carried out without the private key ever leaving the device, providing a high level of security as the keys are not vulnerable to online threats. The private keys, generated via a seed phrase during setup, never leave the hardware wallet, with the phrase typically kept on a piece of paper or a metal plate to keep it secure.
Ledger Recover costs $9.99 per month and stores the encrypted seed phrase in three different places for recovery. However, only two fragments from the three are needed for recovery, putting users’ funds at risk if an attacker hacks two of the three cloud providers. In addition, the forced KYC undermines the anonymity of ledger owners. The new feature has received criticism from the bitcoin community, with some dubbing it the biggest fail in the crypto universe.
Ledger’s software is mostly open source, but it is unclear how the new function will be implemented or if it could be exploited by malware. Moreover, if a hacker manages to hack into the service, Ledger does not guarantee to replace all of the customers’ lost coins. Users must decide whether they are willing to take the risk of using the new function. The fact that the company’s customer data was stolen by hackers in the summer of 2020 is fueling more criticism of Ledger’s new feature.
