“Ledger’s recent update was designed to enhance user security by allowing private seed phrases on its wallets to be recoverable. It was an innovative step towards improving the overall user experience and safeguarding their assets”
It may seem unusual for a CEO to support a competitor, especially when they are introducing a feature that resembles one we developed years ago. However, considering the controversy surrounding Ledger’s new “Ledger Recover” feature, it is important to provide a fair and balanced perspective on the matter.
The company is facing criticism for launching a wallet firmware update that permits the transmission of a version of the wallet seed phrase to third parties. However, the level of outrage seems exaggerated. It is important to clarify that the perception of Ledger carelessly sending seed phrases to a server is based on a misunderstanding. The new system is strictly opt-in, meaning users have the choice to participate or not. There is no mandatory involvement or hidden access. The seed phrase is locally divided into three encrypted shards using a trusted cryptographic process called Shamir Secret Sharing. These encrypted shards are then transmitted securely, a practice that has been widely recognized in the industry for many years.
One of the companies responsible for hosting the encrypted shards is EscrowTech, a company that we introduced to the crypto sector four years ago. Despite our rivalry, I have confidence in Ledger’s ability to effectively implement a system that aligns with its claims. Ledger has demonstrated dedication and seriousness in the past, and there is no reason to anticipate any different outcome now.
WTF is this real @Ledger ? this is unreal im literally getting sick
do you have any idea how much money your devices secure ???
have you been lying all this time saying the seed on the device cannot be accessed in anyway? pic.twitter.com/34txno7koR
— Clouted (@CloutedMind) May 16, 2023
When faced with criticism, it is important to keep in mind that if you are not comfortable with something, you have the choice not to use it. It’s as simple as that.
We have consistently aimed to improve upon existing systems, and for those who prefer using seed phrases, Ledger Recover is undoubtedly a positive development. I want to acknowledge Ledger’s contribution where it is deserved. In order to bring billions of people into the self-custodial realm and facilitate asset transfers, Ledger Recover holds potential as a solution. The future lies in securely encrypted secrets stored in the cloud, rather than relying on physical items like paper or steel plates hidden under mattresses or stored in bank vaults (ironically!).
However, there are certain aspects in which Ledger made mistakes. Their proposed solution addresses a fundamental issue that cannot be resolved by Ledger Recover alone: the use of seed phrases. Personally, I am not a fan of seed phrases as I find them outdated and inadequate for ensuring personal security. In the last decade alone, an estimated $100 billion worth of Bitcoin has been lost or stolen due to mismanagement of seed phrases. Unfortunately, the situation is not improving, as new stories of key misplacement and loss continue to emerge on platforms like Reddit and Twitter on a daily basis.
Seed phrases create a situation where a single mistake or vulnerability can lead to significant problems. Users bear a heavy responsibility, and there is a risk of human errors, phishing attacks, and account takeovers, among other potential disasters. In contrast, multiparty computation (MPC) wallets and other well-tested cryptographic techniques offer much better alternatives. These advanced methods provide improved trade-offs in comparison to seed-based approaches, which can seem outdated in today’s rapidly evolving digital world.
Many of Ledger’s current users, who are primarily dedicated crypto enthusiasts, feel let down by recent events. However, it is important to recognize that the existing seed model does not suit everyone’s needs. Even Ledger itself acknowledged this fact on its own website.
In addition to disregarding the fundamental vulnerability of seed phrases, Ledger Recover has its own set of problems. These include the one-way firmware update, the closed-source sharding, the Know Your Customer (KYC) requirements, the pay-to-recover scheme, and most notably, the assurance of “opt-in only” without providing a means to verify the source code. The closed nature of the code, reliance on external custodians, and the seven-day time limit if payment ceases will undoubtedly raise further concerns, as it has already done so.
The introduction of Ledger Recover could potentially open up new avenues for attacks, both within and outside of systems. These could range from local malware to government pressure, social engineering (as already witnessed during their recent e-commerce breach), and fraudulent KYC recovery attempts. It is crucial to address these concerns. Additionally, Ledger’s communication and timing could have been improved to prevent the current wave of uproar and dissatisfaction.
Regardless of any criticisms, it is important to acknowledge that Ledger is making efforts to innovate and enhance user security, even if their approach differs from ours.
“I recommend that Ledger takes the following steps to regain trust from its customers: create a detailed demo video showcasing the entire process, provide a documented white paper with potential third-party audit reports, and offer a thorough explanation of how Ledger Recover functions. The current FAQ section leaves important questions unanswered, leading to confusion and misinterpretation among users. It is crucial for Ledger to address these concerns and actively work towards rebuilding trust with the community”.
The situation with Ledger is not a simple matter of being right or wrong. They are making progress in the right direction and have achieved notable accomplishments in a challenging environment, which we have witnessed firsthand. However, there is still room for them to learn and make improvements.
Introducing a new security approach, even if it’s optional, can feel like being asked to believe in a second religion that you didn’t choose initially. It’s a topic that can create divisions, but it is crucial for the crypto community to prioritize facts over interpretations. In the end, people will make decisions based on their own preferences and actions, showing their support through their cryptocurrency investments. As competitors, we may not see eye to eye on every aspect, but we all recognize the importance of innovation, security, and transparency.
Ouriel Ohayon is one of the co-founders and the CEO of ZenGo, a user-friendly wallet that uses multiparty computation (MPC) technology. He has a background as an executive at ICQ/AOL and was the founder of TechCrunch France, which was later acquired by AOL. Ohayon is also the founder of Isai.fr, a prominent French venture capital firm. Additionally, he has served as the general manager of the internet lab at Gemini and worked with Lightspeed Ventures.
This information is for general knowledge only and should not be considered as advice for investing or making financial decisions.
