- A popular trader shared more challenges inherent in crypto self-custody, especially when using Trezor and Ledger hardware wallets.
Users continue to lose funds from the recently uncovered vulnerability in Coldcard hardware wallets. As of Sunday, reports indicate that the heist has already drained more than $80 million in Bitcoin (BTC).
In the aftermath of the incident, Rager, an account on X linked to crypto trader Josh Rager, has pointed out other challenges crypto hardware wallets typically contend with. It made the crypto community question whether self-custody is actually worth the trouble.
Crypto Hardware Wallet System Failure
Talking from his personal experience, Rager claimed that his hardware wallet wasn’t hacked. However, it nearly cost him everything.
The trader said that he nearly lost access to his entire BTC stash in an old Trezor wallet. The hardware wallet notably had a multisig (multi-signature) setup for extra security.
Later, a firmware update caused it to stop signing transactions completely. Nonetheless, he was able to retrieve his assets, thanks to a very basic security safeguard: he wrote his seed phrase somewhere else.
Wear and Tear Taking Over
Meanwhile, Rager encountered another potential central point of failure in Ledger. He highlighted that the screens of old Nanos fade over time.
The issue could lead to problems entering users’ PINs. It could permanently lock them out of their crypto assets.
A Totally Unplanned Scenario
Overall, the trader noted that none of the abovementioned situations involve a hack. The scenarios show an unplanned scenario wherein hardware wallets stop working as intended.
Beyond the Coldcard issue, old hardware wallets like Trezor and Ledger also pose a significant risk of crypto asset losses. Therefore, Rager recommended that users keep their devices updated.
They must properly back up their seed phrases in multiple places, too. What’s more, the trader recommended adding multisig for an extra layer of security.
CZ Responds to the Recommendations
Rager’s recommendations caught the attention of Changpeng “CZ” Zhao, founder and former CEO of Binance. CZ reminded people that securing a backup seed phrase can be quite challenging.
First, keeping a seed phrase in multiple locations risks someone else discovering it. Then, man-made or natural causes could compromise it, such as fire and flood. Furthermore, owners themselves could forget where they have stored their backup.
The Bottom Line
There’s no such thing as a risk-free option to storing one’s crypto assets. There’s always a trade-off between self-custody and entrusting them to third-party platforms. Vigilance remains the key to risk mitigation.
