Find out why the Ledger Nano S is widely considered the best cryptocurrency hardware wallet in 2018 -- and about its major possible flaw.
As you probably know, cryptocurrency wallets do not store any coins at all, but are merely fancy (and hopefully secure) vessels for your private and public keys to monitor your balance and write transactions on the blockchain.
Ultimately, there are 5 kinds of crypto wallets:
The Ledger Nano S falls in the hardware wallet category and looks like an elegant USB stick, or rather an old MP3-Player with a basic LED display. However, one should not be deceived by its looks!
While it cannot play your favorite mp3 collection, it can safely hold different assets (bitcoin, Litecoin, Ethereum and altcoins) on one device and allow you to securely sign transactions at all times.
Hardware Wallets inherently offer first-rate security
To understand how the Ledger Nano S works, let's go over how cryptocurrency transactions are done in the first place.
In short, transactions are merely a change of ownership recorded in a public ledger (the blockchain); no actual "transaction" of coins in the traditional sense (from one wallet to another) takes place.
This is due to the fact that wallets, as already mentioned, do not hold any crypto coins themselves, but rather store just a pair of encrypted data: a public and private key. Essentially, your private key is used to generate a unique signature for every single transaction, while a public key checks if the signature on the transactions was really made with your private key.
Now, from this you may think that you could reverse-calculate the private key knowing the public key, but this is practically impossible. It would take 7 billion high-end computers approximately:
77,000,000,000,000,000,000,000,000 years (that is 77 Septillion!)
to break the encryption of your private key! Hackers do not hack your key, they steal it.
This is where hardware wallets come into play.
To prevent anybody from stealing your private key, hardware wallets keep it offline at all times, even if you connect them to a virus & malware infected computer. They basically:
get a transaction --> sign it offline with private key --> send out signed transaction
Therefore, your private key is never-ever stored, shown, sent, used or transmuted in any way on any platform accessible to anybody. The hardware wallet acts as a filter that lets only transactions come near the private key and lets out only a signed transaction back out of it.
That, combined with the power needed to brute force a private key, makes hardware wallets safe & secure from both: hacking and stealing alike.
So, what makes the Ledger Nano S the best hardware wallet in 2018, anyway?
Our little friend comes in sleek metal casing on which one can engrave various things like your business logo or address info, under which the actual hardware wallet is. This gives it increased sturdiness, practicality and a sexy look.
It looks nostalgically close to old mp3 players that featured a LED display. It has 2 buttons on the upper side that allow you to control its few functions, and comes with a micro-USB cable, instruction manual and recovery sheet.
The Ledger Nano S set-up is fast and painless:
Initially, you will create a 4-digit PIN code that will be required each time you plug it into a computer. After 3 incorrect inputs of the PIN code, the device will wipe itself.
Afterwards, and only on the first initialization of the Ledger Nano S, a 24-word recovery phrase will appear on the screen of the device known as a seed. This phrase, that is unique to your device, serves as a full backup of your device configuration, i.e. you can recreate your wallet with it in the event that your wallet gets damaged, lost or stolen. It goes without saying that this phrase should-be stored neither digitally nor easy-to-lose physically! Everybody who has access to it can potentially gain control of your cryptocurrencies.
The Ledger Nano S now creates a so-called root key on the basis of the 24 word phrase. This root key is used to create your very own private key for the blockchain of your choosing. Each blockchain has its own method of creating a private key using the root key and, as always, it has 256-bit encryption.
The private key on the Ledger Nano S is NEVER known or held by a third party or even Ledger itself, and it is hard-locked on the device's Secure Element. The Secure Element is based on a dual-chip architecture and the part of it where the key is stored and transactions are signed is ALWAYS kept offline. This is the same technology that is used in credit and SIM cards.
Next you will have to install the Ledger Manager app from which you will be able to install software for different coins onto your Ledger Nano S.
There are 3 apps that you can install onto your device to handle the following crypto coins:
The later 2 are self-explanatory, while the Bitcoin & Altcoin Ledger App allows you to trade with all the cryptocurrencies on the list found >> here <<.
You can trade, check your accounts and manage multiple addresses for each currency on just one device.
To make transactions you simply open your Ledger Manager app on your computer, then you find the desired cryptocurrency icon on your Ledger Nano S, and that's it! You can now start receiving and sending coins to your heart's desire, with perfect security.
When you get to sign a transaction, you will have to press both buttons on the device simultaneously, making it impossible for anybody away from the device to sign transactions with your private key. This is the extra layer of security that the Ledger Nano S has, on top of its PIN code and the inherent security provided by hardware wallets.
However, isn't something fishy here? Isn't the part of the device that is attached to the USB (and through it to your computer) and that communicates with the offline part stil vulnerable to malicious attacks, making it a potential security threat?
In a way it is, and it is a harsh reminder that...
It has been demonstrated that the Ledger Nano S has a fatal security flaw which allows hackers to instal malware on the device if they happen to get their hands on it before you do.
If a hacker gets hold of the device beforehand in a so called "supply chain attack", he can predetermine the generated 24-word recovery phrase, with which all your private keys would be later generated with.
On the 20th of March, 2018, Ledger released an update to its firmware that patches some security issues of the device, while it simultaneously checks if the device has already been compromised in any way. While this is excellent news, it is potentially just a question of time when another hack will be found to tamper with the device beforehand.
Fear not! While the device itself may have that potential security threat that may be a characteristic of nearly all hardware wallets, you can protect yourself easily from it by simply buying the Ledger Nano S only and exclusively from first-party retailers.
Yes, that's all there is to it.
The Ledger Nano S is available for 79.00€ from the Official Ledger site and has been sold (together with its "brothers") over 1,000,000 times in 165 countries.
It's up to you to make the step now and secure your cryptocurrencies with the best hardware wallet in 2018. Feel safe yet?
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