1/ Ledger "Recover," a thread ??Last night Ledger accidentally leaked some info on their new recovery subscription service, and today they revealed the details.Let's walk through their proposed "solution" to cryptocurrency custody and how dangerous it is.
2/ The core premise of the offering is the ability to (supposedly) encrypt shards of your seed phrase into 3 pieces, give over your identity + a selfie recording, and then trust 3 custodians to secure those shards for you.Here's why that's problematic.
3/ In order to use the system at all, you have to connect your identity to your Ledger account, giving yet another KYC pain-point for data leaks, hacks, and government censorship or surveillance.Now you're trusting a third party with info on your ID and info on all your crypto.
4/ Not only can leaks or hacks occur, the sales of data on users of Ledger would be extremely valuable now and in the future, and any of the "authorized third parties" could decide to leverage your data as an income stream at any moment.
5/ This also continues to harm your privacy. Most Ledger users use Ledger Live, software that uses Ledger's nodes for all wallet sync, revealing *every* detail of your cryptocurrency activity and making it trivial for Ledger to link this to your ID itself.
6/ All of this KYC data is collected by a company called Onfido, who handle the KYC onboarding. They keep your ID, pictures/videos/sounds from your selfie video, and a holistic picture of your device and current activity when you upload/verify identity:onfido.com/privacy/
7/ Onfido has a complete picture of your identity and the fact that you are a Ledger user, and thus that you hold a reasonably large amount of cryptocurrency.They also have a holistic picture of the device you use for auth:
8/ So now not only are you trusting Ledger and "authorized third parties" with your identity data, you're trusting Onfido with that and much more *along with the knowledge that you hold and use large amounts of cryptocurrency*.Nightmare fuel that easily enables new threats.
9/ Now onto the technical aspects.First it's important to understand that we have to *100%* trust Ledger here, as the code for this entire process is closed-source and unverifiable.That is *extremely important* as no one but them can verify what actually happens/security
10/ If all works as said, in theory your seed never leaves your device in an unencrypted state. We cannot verify this and be sure it's done securely or encrypted properly, however.But this does mean there is now code running on your Ledger designed to send your seed over USB/BT
11/ Not only does this mean that the wallet you thought made sure your seed never left the device can now become "hot" with a few key presses.That also opens up massive new attack vectors for phishing and malware that can prompt you unwittingly to send your seed phrase to them.
12/ We cannot be sure that Ledger built in safeguards against someone sending the encrypted shards all to one person, or that Ledger actually sends the shards to 3 different custodians.We also cannot be sure that the shards can only be decrypted by you.
13/ What's completely unclear is how this decryption process during restore actually works.You have to login and verify your ID, but if decryption can only happen on your device, how does your new device get the decryption key?
14/ Normally in E2EE schemes you need a way to approve a new device and send it the decryption key, but in the case of losing your Ledger you *cannot do that*, so someone else must have a copy of the decryption key they send to your Ledger when you recover.
15/ So who in the world has this decryption key? Is it Ledger? Is it somehow encrypted behind your Ledger Recover login + ID verification?If so, how is it stored, what encryption is used, and how can we verify any of this?
16/ Another point, if anyone were to know that you used Ledger Recover and get your identity (Ledger isn't exactly known for their cybersecurity practices) they can now theoretically steal all of your cryptocurrency despite your Ledger sitting safe and sound in a drawer somewhere
17/ Lastly, this opens up massive government/LE seizure risks, as at least one custodian (CoinCover) and the identity provider (Onfido) are UK-based.The third custodian is not named in the official docs but was previously revealed to be EscrowTech.
18/ If EscrowTech is still the third custodian they are US-based, which would put 2/3 companies within 5-eyes jurisdiction (UK and the US).The government can easily come knocking and request all holders ID information and then seize funds at will.
19/ I absolutely cannot believe that Ledger thought this was a good idea, as it breaks all of the previous reasoning for using their hardware wallet (cold storage) and introduces KYC directly into the mix for any who opt into this.It's abhorrent and extremely sad to see.
20/20 Ledger have lost the plot and gotten blinded by their success, and their aggressively closed-source nature makes it even harder to trust any of their claims.Time to get your hammers out and then find a new, open-source, freedom-oriented hardware wallet.
I had the pleasure of talking to @laurashin and breaking this all down in less than 30min, definitely the easiest way to get caught up and fill in the gaps!
