The Key to Crypto Security

In light of the recent Ledger debacle, it was plain to see a disconnect between what the community thought was happening on in their Ledger device, and what was actually the case.?

This led us to think that maybe there are some other gaps in the collective knowledge of best security practices around crypto, and just how some of these solutions work.?

At Nested, we are self sovereignty maximalists, which is why we designed our platform to be as easy to use as a centralised exchange, but where you always remain in control of your funds. If we can’t control and own our own funds, then why not just use a fiat bank?

So with all of this in mind, let’s have a look at the different ways you can stay safe on-chain while maintaining full control over your funds.

How do I Stay Safe?

To fundamentally understand security and what you need to do to stay safe, we must briefly define what a private key and seed phrase actually are:

• Private key: A long string of 256 jumbled letters and numbers that are created when you register a new blockchain address. These are very difficult to remember or type out when needed.
• Seed Phrase/Recovery Phrase?- 12, 18, or 24 random english words that are generated when a crypto wallet is made. A single wallet can hold multiple private keys and is created to abstract away the need to remember and type long cumbersome private keys. Your seed phrase is essentially a backup of your private keys.

The term “crypto wallet” can be quite misleading. Your crypto is never actually stored in your wallet, rather it lives on the blockchain (a digital ledger of who owns how much of what asset), with your private key being your proof of ownership.

A “wallet” is simply an interface with which you can open the door to your part of the digital ledger, allowing you to make edits to that section. It provides an easy to use application to manage any private keys that you create.

By serving as this unique cryptographic signature, private keys bolster your presence within the blockchain network, making them more than just safety codes—they are your personalized cryptographic identity in the blockchain ecosystem. Your proof that you are the person who owns the control of a certain section of the ledger.?

They are very important.

As you will most likely be interacting with your private keys through a wallet, we will use “keys” as a blanket term to refer to the seed phrase that gives access to your private key containing wallet.

So what can I do to keep my seed phrase safe?

Now that we understand what a private key actually is, we now know how important it is to keep it safe and away from prying eyes.?

It goes without saying that giving these keys to someone else for any reason is a foolish thing to do. But they need to be stored somewhere, so where can and should you be keeping your keys?

Let’s start with where NOT to keep them.

• On a device that is connected to the internet?- crypto is a magnet for hackers. It is possibly the best thing that has ever happened to them. Don’t keep your keys where someone can see them digitally. This means no text file, pdf, google doc, etc..
• Somewhere you may lose them?- this could be on a scrap piece of paper, an old notebook or an otherwise un-noteworthy inanimate object. Be very deliberate where you put your keys. Make sure it is somewhere you will remember and do not take this step lightly.?
• Somewhere somebody could see them?- as crypto becomes more and more popular, the chances of somebody seeing your keys written down on a piece of paper and knowing what they are increases. Better to not risk it.

So where?can?you keep them?

There are many options - so let's go through some and look at their pros and cons.

Hardware Wallet

After the PR nightmare that Ledger just faced, it is a good time to talk about what a hardware wallet like a Ledger device actually is, and how it protects your seed phrase. There are many hardware wallets and they all function slightly differently, we will simply be using Ledger as an example.?

There are a two key components to a hardware wallet:

- A secure element

- Operating system and apps

Let’s take a look at these parts and what they do.?

The?secure element?is a tiny computer that lives inside your device. This miniscule computer is where the device's operating system and apps are stored and run. A microcontroller is then placed between this secured element and acts as a traffic director. It doesn't make decisions or store any important secrets; instead, it simply helps move information between the Secure Element and the other parts of the device. This microcontroller adds a physical and software barrier between the "outside" and the device.

This system was created to stop physical attacks. Meaning if someone stole or found your device, there would be no way to physically extract the key.

As mentioned before, the?OS and apps?run inside the secure element. When you choose to update your Ledger or hardware wallet device, you are allowing the company to change your OS or app and thus your secure element has been modified. This has always been and will continue to be the case for all hardware wallets.

When buying a hardware wallet, you are indirectly trusting the keys to your wealth to a company. Even if they are not nefarious, they can still make a mistake or be compromised.?

Now that we know how a hardware wallet works on a high level. What makes it a good option??

Pros:

1. Security: Hardware wallets store your private keys offline (also known as cold storage), making them immune to online attacks such as viruses, hacking, and phishing attempts.
2. Ease of use: Most hardware wallets are designed with user-friendly interfaces, making it easy to manage your crypto assets while staying safe.
3. Recovery: Most hardware wallets provide a recovery phrase that allows you to restore your funds on a new device if the old one is lost or damaged. This is the same as a seed phrase.

Cons:

1. Cost: Hardware wallets can be expensive compared to other options.
2. Less convenient for frequent use: If you need to frequently access your crypto assets for trading or purchases, using a hardware wallet can be less convenient compared to a software or online wallet. If you are away from home and don’t have your hardware wallet with you, it is impossible to access your funds.
3. Dependence on Manufacturer: There's a level of trust placed in the manufacturer. If the manufacturer's security protocols are flawed, or they are otherwise compromised then your funds could be at risk.

Hot Wallet

A crypto "hot wallet" is a digital wallet that's connected to the internet. It stores your cryptographic keys online, making it easily accessible for transactions. While this convenience is a major benefit, it also makes hot wallets more vulnerable to online threats such as hacking or phishing, compared to offline "cold" wallets.

A hot wallet is what you use on a daily basis to interact with dApps and make transfers. MetaMask, Rabby, Coinbase Wallet are all examples of a hot wallet.

One way to increase your hot wallet security is to create two wallets. Wallet 1 is used to store the bulk of your money. Wallet 2 is used to connect to dApps and is used in day to day life. Whenever you want to make a purchase or run out of money on Wallet 2, simply transfer some more over from Wallet 1. This way, Wallet 1 is never connected to any dApps and is immune to phishing scams.?

Pros:

1. Convenience: Quick and easy to set up, and allows for immediate transactions.
2. Accessibility: Can be accessed from anywhere with an internet connection.

Cons:

1. Security Risks: More vulnerable to online threats like hacking and phishing.
2. Dependence: Rely on third-party services, which can potentially be compromised or go offline.

Paper wallet

A paper wallet, in its purest form, is a physical paper copy of your public and private keys associated with your cryptocurrency. This method of storing cryptocurrency is secure from digital attacks, as these paper wallets exist offline and, hence, cannot be hacked digitally.

Creating one is fairly straightforward. Here is a?tutorial?to set one up in about 10 minutes.

Pros:

1. Offline Storage: Since paper wallets store your cryptocurrency offline, they're immune to digital threats like hacking and phishing.
2. Full Control: You're the only one with access to your funds as long as the paper wallet is kept secure.
3. Privacy: They can be created and used without revealing any personal information.
4. Cost-Effective: They're free to set up, unlike hardware wallets that can be costly.

Cons:

1. Damage Risk: Paper wallets can be damaged easily by water, fire, or just degradation over time.
2. Loss Risk: If you lose your paper wallet, it's impossible to retrieve your funds.
3. They are often intended for a single use and aren't convenient for frequent transactions.
4. Transfer Complexity: To spend or transfer partial amounts, you'd typically need to import (or "sweep") your paper wallet into a software wallet, which can be a complex process for beginners.?

Metal Wallet ??

A metal wallet is akin to a paper wallet, but made out of steel. This provides another layer of protection by making it almost impossible to damage. There are several kits on the market that are specifically designed for storing crypto seed phrases. The most well known brand is?CryptoSteel, however they can be quite pricey.

Pros:

1. Durability: Metal wallets are significantly more durable than paper wallets. They can resist damage from fire, water, and other environmental conditions.
2. Offline Storage: Like paper wallets, they offer a high level of security as they're not connected to the internet, making them immune to online hacks or malware.
3. Long-term storage: Given their durability, metal wallets are a solid choice for long-term storage of your cryptographic keys.

Cons:

1. Cost: Metal wallets can be more expensive to set up than other types of wallets, especially paper wallets.
2. Loss risk: If you lose your metal wallet, it is just as irretrievable as a paper wallet. Your funds are lost unless you have a backup.
3. Complexity: It might require effort and tools (like a small engraving tool) to properly set up.
4. Limited Usability: Like paper wallets, metal wallets are not designed for frequent transactions.

Multisig Hot Wallet

A multi-signature (multi-sig) hot wallet is a type of cryptocurrency wallet that requires multiple approvals (signatures) before a transaction can be made. This multiple-key approach adds an extra layer of security by distributing the security to different people/locations.?

It is "hot" because it is connected to the internet, making transactions convenient and quick once you have the people or keys together. This type of wallet is mostly used by businesses, with multiple owners/employees having access to one signature. The most used multisig wallet is?Safe, which currently has $39B+ worth of crypto stored across their wallet infrastructure.?

Pros:

1. Enhanced Security: The need for multiple approvals before making a transaction provides an extra layer of security.
2. Flexibility: The number of required signatures can be adjusted based on your preference.?

Cons:

1. Internet Exposure: Being a hot wallet, it is theoretically open to online attacks like phishing, malware, and hacking.
2. Complexity: Setup and use can be complex, especially for beginners.
3. Dependence: If it's a 2-of-3 multi-sig wallet (two signatures required), and one of the participants loses their key, you could potentially lose access to your funds unless you have the necessary backup.

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