The summary of an exclusive knowledge-sharing session: “Not Your Keys, Not Your Coins – Self-custody for Individuals and Organizations”, co-hosted with Ledger, the industry leader in Crypto and Web3 security, and presented by Benjamin Timon, Ledger’s Technical Account Manager.
Not Your Keys, Not Your Coins – Self-custody for individuals and organizations.
Self-custody is a core value of the Crypto ecosystem and a value that Ledger actively promotes. And at Ledger we don’t just promote self-custody, we make it possible. Ledger builds security solutions and hardware wallets to empower users to manage their own keys and safely interact with Web3.
In light of the recent events which led to the FTX collapse, self-custody is more important than ever. But what is self-custody exactly? Why is it so important in crypto? And how individuals and organizations can adopt self-custody to make the ecosystem more resilient?
Anyone who is a little bit familiar with crypto has already heard the sentence “Not Your Keys, Not Your Coins”. The idea behind this sentence is that in crypto you truly own an asset only if you own the corresponding private key.
In Web3, ownership is not linked to a user account or email address, it’s linked to a key. To transfer a crypto asset, you need to sign a transaction with a private key to prove that you own the asset and that you approve its transfer.
Therefore, keys are essential and represent ownership in crypto. If you don’t own the keys, you don’t own the assets.
Why is self-custody important?
As a user, managing your own keys is essential because it increases the decentralization and resilience of the ecosystem.
When you don’t own your keys, you need to trust a third-party, such as a custodian or an exchange, to manage your assets on your behalf. This leads to a centralization of assets and creates single points of failure. And this is exactly what we observed with the FTX collapse, where millions of people trusted FTX to manage their assets and ultimately lost everything as they did not have true ownership over their assets.
This is exactly to avoid such scenarios that crypto was created in the first place. When Satoshi Nakamoto created Bitcoin, the vision was to build a decentralized protocol where individuals manage their own keys, are their own bank, and do not rely on third parties like in the traditional financial system.
So self-custody is essential but comes with extra responsibilities. When you manage your keys, you need to protect them. As private keys grant full ownership over the assets, if someone gets access to your keys, they can steal your funds.
Self-custody for individuals – Ledger wallets
This is where Ledger comes into play. At Ledger we build hardware wallets providing the highest level of security and ownership in the space, empowering users to manage their own keys securely.
When you use a Ledger wallet, your keys are generated and protected by a secure chip called a Secure Element, which is the same technology that has been used for decades by banks and governments to protect secrets in banking cards and passports.
– This secure chip is certified against software and hardware attacks, so that your keys are protected at rest – when the device is offline – and also at use – when you sign a transaction online.
– Secure hardware is the only way to truly protect private keys today as software wallets can easily be hacked if the laptop or mobile phone running the wallet is compromised.
On top of secure hardware, Ledger also implements unique security mechanisms such as the Ledger Trusted Display to ensure that the user is in control at all times:
– When you use a Ledger to sign a transaction, the screen you use to review and approve transactions is what we call a Trusted Display. The way the device and screen are designed, ensure that what you see and approve on the screen is the exact transaction that will get signed by the device.
– This protects against malwares that can compromise software wallets by tampering with the content of the transaction you are about to sign. For example you think you are sending 1 BTC to your friend, while in the background the transaction you sign is actually sending 100 BTC to the hacker.
– Such security features unique to Ledger really empowers the user as it ensures a full control of what is signed by the owner, which is crucial in the self-custody paradigm.
Finally, users also trust Ledger because ultimately they do not rely on Ledger. When you use a Ledger, you generate your own keys, and get a recovery phrase which ensures you can recover your keys and funds at any time outside of Ledger. Ledger only provides the technology, but users do not rely on the company and have full sovereignty over their keys and assets at all times.
Self-custody for organizations – Ledger Vault
Self-custody isn’t essential only for end users. In an ecosystem that still strongly relies on centralized parties, it is vital that organizations also adopt self-custody.
As an example, the FTX collapse created a real shock wave, where many organizations which did not manage their own keys and relied on FTX to manage their assets were impacted by FTX actions. The disaster initiated by FTX, ultimately propagated to other companies and many more end users than just the original FTX customers.
To increase the overall resilience of the ecosystem, organizations should also manage their own keys and keep their funds segregated from other players, so that if one entity collapses, it does not affect the other companies and reduces contagion.
But implementing self-custody as an organization comes with its own set of challenges. As a company, you need to protect your keys both from external hackers stealing your keys and from internal threats such as inside jobs and mismanagement of assets.
One thing that participated in the collapse of FTX is a clear mismanagement of funds. Some people within the organization had direct access to private keys and were able to make fraudulent transactions without the rest of the organization noticing. To avoid such mismanagement, companies need to implement governance to control how keys are used within the organization.
At Ledger Enterprise, we built the Ledger Vault platform to solve the challenge of implementing self-custody as an organization.
Ledger Vault is a multi-signature hardware wallet with built-in governance to securely manage your keys as a company. It’s a full self-custody solution which combines Ledger’s secure hardware technology and a unique governance framework to protect keys both from external threats and internal mismanagement.
To learn more about Ledger Enterprise and Ledger Vault, check out enterprise.ledger.com
*Data from Ledger
Disclaimer: Cryptocurrency and Digital token are highly risky; investors may lose all investment money. Investors should study information carefully and make investments according to their own risk profile.
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