What is a crypto wallet?
Cryptocurrency wallets are like digital safes where people can keep their public and private keys. These keys are essential for accessing and managing digital currencies. These wallets are designed to be user-friendly, making it simple for users to oversee their cryptocurrency balances.
There are primarily two categories of wallets that people use. The first kind is called a ‘hot wallet’, which is a software-based option. These digital wallets operate on the Internet, much like an online bank account.
On the other hand, we have ‘cold wallets’. These physical devices, like a secure USB drive, store cryptocurrency offline. They are tangible pieces of hardware where you can store your digital assets, far away from the reach of online threats.
The two most influential companies in the space are Ledger and Trezor. These companies provide hardware wallets with different features but serve the same purpose. If you’re interested in reading more about the best Bitcoin wallets, we’ve included these as well.
Why are hardware wallets important?
The main advantage these crypto wallets have is that they can be used to store your cryptocurrencies offline, without needing to be connected to the internet. This is a significant factor since nobody can steal your cryptocurrencies unless you willingly give them your wallet recovery seed.
What is a recovery seed?
Setting up a hardware wallet like Trezor or Ledger involves a vital step, and that is recording a recovery seed. You may have heard of it by other names such as a recovery phrase, backup phrase, or word seed. Regardless of the name, it serves the same crucial purpose. This recovery seed is a sequence of 12, 18, or 24 words, and it holds all the necessary information to restore your wallet should the need arise.
Consider this recovery seed as the master key to your digital safe. Just as you would secure a physical key, it is absolutely essential to write down and safeguard this recovery seed. This is not just a step in the process; it’s the most crucial task when it comes to using a hardware wallet.
Basically, if you loose your hardware wallet, you can always buy a brand new one, restore it using the recovery seed, and you get all your cryptocurrencies back. Pretty important?
Ledger decided to store your seed online
In the latest firmware update 2.2.1, Ledger decided to add a new service to the platform, namely Ledger Recover. From the firmware release notes:
Ledger Recover is ID-based key recovery service that provides a backup for your Secret Recovery Phrase.
It’s worth noting, however, that this service is optional, but as some users stated, “being a cold hardware manufacturer, adding this option is just bad practice”. It’s not sure if Ledger wants to increase their revenue with this service, but it’s definitely seen as a wrong move from the company. The whole purpose of cold wallets is for the user to have complete control over their wallet and its recovery phrase. Saving the recovery phrase online, even encrypted, completely defies the purpose of a hardware wallet.
Once the firmware update was discovered, the company received a lot of backlash on most social networks. It will be interesting to see if they keep this feature or abandon it for damage control.