The Ledger Nano S: Peace of mind

in cryptocurrency •  10 days ago

If you are new to the world of cryptocurrency, you may not know a whole lot about safety and security when it comes to your increasingly valuable crypto collection. It's time to think about this.

Upon first purchasing Bitcoin on Coinbase, you may have sat back, relaxed, and started watching the price climb. What a feeling! Watching your money work for you! So this is how big-shot capitalists feel! Every once in a while, you would come back to your account and see that, yes, once again, your Bitcoin is just a little more valuable! Cool!

And then it happened. You tried to sign into Coinbase, but it was offline. Coinbase had crashed due to heavy traffic. No worries, it's just maintenance, right? No big deal right? I mean, your money is safe, right?

Sort of.

Not really.

Yes, it turns out Coinbase was simply overwhelmed by increasing demand and had to perform some maintenance (maybe some server upgrades?) to keep up with extraordinary demands. They were back up and running in a couple hours. But that's not the point.

The point is - Coinbase had your keys - and Coinbase was not available. So, your cryptocurrency was not available. In a sense, Coinbase owns your keys until you store them somewhere else.

Let's imagine Coinbase crashes again when you want access to your funds. That's no good. What if Coinbase gets hacked? It has happened to many other exchanges. What if Coinbase gets shut down - even temporarily - while the IRS does a little digging around? These are all real possibilities.

Knowing this, I purchased a Ledger Nano S from https://www.ledgerwallet.com/. With a hardware wallet, I have excellent security from theft and peace of mind that I am not leaving my funds in the care of an exchange or other third party.

The Ledger Nano S comes packaged with a micro USB cable that you connect to your computer. Once connected, and after entering your own personal PIN (up to 8 digits), you record a 24-word phrase that is your password to your funds. Keep this password phrase safe and secret. If your wallet ever fails or disappears, you can still access your funds with this recovery phrase. So can anyone else, by the way, if you leave this series of words lying around. Keep it safe.

Once you have recorded this information on paper (NOT on any kind of device! Old-school pen and paper can not be hacked!), have a look at the instructional paper that gives you an address to get started with your Ledger. Add the Ledger Manager and you can start installing any coin apps for coins you wish to send to the wallet. If your wallet runs out of room for apps, not to worry! Just uninstall one of the coin apps and install others -- your keys will still be stored and you can access them by re-installing any of the coin apps you need.

When this is set up, go to whichever wallet you wish to use and adjust coin settings for transaction fees (I set mine to medium because I'm impatient - you could set your transaction fees to low, but expect to wait a number of hours). Choose receive and scan the QR code on-screen by choosing "send" from your Coinbase account. I would probably try sending a small amount the first time, even though it means paying a little more in fees - just to be safe.

Always double-check that the address on your sending device matches the receiving address. When you're ready, send your funds. They should show up within moments, but may take some time to be confirmed. The first time I sent some Vertcoin, it took quite a few hours for some reason. All of my other transactions have been nearly instantaneous since then.

Once you have completed sending your coins, detach the Ledger Nano S from your computer. Your funds are now in "cold storage" -- as in, your keys are stored offline and are not available to hackers. This is a far, far safer place for your funds to sit than on Coinbase.

Now, store your wallet safely and store your 24 word phrase somewhere else safely, like in a fireproof safe. You might even want a couple copies of the 24 word phrase kept in separate, safe areas. This 24 word phrase is your only way to access your funds if the wallet ever fails, is lost, or is damaged. Keep it as safe as you would want to keep the pile of money it protects.

Now, you have peace of mind knowing your crypto funds are safe and secure!

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source:
https://www.ledgerwallet.com/
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Really helpful article. Regards ;)

Ledger is a good option, but also need to consider the cost of purchasing a ledger as a percentage of what a person may have invested in crypto currency. If you only invest $1000 and a ledger costs $100 then it's not worth 10% of your capital.

Other options might be more suitable, ie software wallets.

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Consider that the $1000 investment you make now may be worth 5 or 10 thousand dollars in a year, and that $100 Ledger doesn't seem so bad.

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Then you buy the ledger when your holdings are worth 5 or 10k

I disagree with this line:

(NOT on any kind of device! Old-school pen and paper can not be hacked!)

Paper can't be hacked, but it can be lost, found, burnt, faded etc. It's not a good way to ensure availability of your private key.

Consider a solution that includes utilising something like KeePass, which is a highly encrypted self managed password storage solution, stored on a cloud service that offers 2fa

Also a good idea for that cloud service to not be linked to the email address that you use everyday (if people don't know what email you used they can't hack it.

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We're going to have to agree to disagree on this one. Make multiple copies on paper in secure places - this is still far more secure than any digital version of your private keys.

If you digitize your private keys in any way, there literally is no point to cold storage. Your keys are no longer in cold storage if they are stored digitally, so the cold storage wallet is pointless.

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Thinking paper is more secure than an encryption method is quite contrary to the thinking I would expect of someone keen on the technology behind cryptocurrency

KeePass supports the Advanced Encryption Standard (AES, Rijndael) and the Twofish algorithm to encrypt its password databases. Both of these ciphers are regarded as being very secure. AES e.g. became effective as a U.S. Federal government standard and is approved by the National Security Agency (NSA) for top secret information.
The complete database is encrypted, not only the password fields. So, your user names, notes, etc. are encrypted, too.
SHA-256 is used to hash the master key components. SHA-256 is a 256-bit cryptographically secure one-way hash function. No attacks are known yet against SHA-256. The output is transformed using a key derivation function.
Protection against dictionary and guessing attacks: by transforming the master key component hash using a key derivation function (AES-KDF, Argon2, ...), dictionary and guessing attacks can be made harder.
Process memory protection: your passwords are encrypted while KeePass is running, so even when the operating system dumps the KeePass process to disk, your passwords aren't revealed.
[2.x] Protected in-memory streams: when loading the inner XML format, passwords are encrypted using a session key.
Security-enhanced password edit controls: KeePass is the first password manager that features security-enhanced password edit controls. None of the available password edit control spies work against these controls. The passwords entered in those controls aren't even visible in the process memory of KeePass.
The master key dialog can be shown on a secure desktop, on which almost no keylogger works. Auto-Type can be protected against keyloggers, too.
See also the security information page.

All of this is stored on a cloud service, an account which is not known to anybody, and protected by 2FA.

So somebody would have to first hack my cloud, which is extremely difficult with 2FA. And then they'd have to find the database, and then get through that strong encryption.

The benefit to me is that I can get to it whenever I want. If my house burns down tonight, no problem.

If you're going to store a piece of paper in multiple places, how are you going to ensure the security of that paper?