Ledger CEO Suggests "Sharded" Wallet Keys May Be Shared with Authorities Under Subpoena

Ledger CEO Suggests “Sharded” Wallet Keys May Be Shared with Authorities Under Subpoena

Updated: 23 May 2023

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Pascal Gauthier, CEO of Ledger, confirmed that governments could access the sharded wallet keys of users who choose to enable Ledger’s controversial Recover upgrade if subpoenaed.

Ledger’s latest firmware update and hardware wallets have recently been contentious topics. The Recover upgrade, an optional firmware update, allows users to back up their seed phrases with third-party entities.

Sharded Wallet Keys Disclosure: Ledger CEO’s Remarks on Government Access

The Ledger Recover service assists users in recovering their seed phrases if they are lost. Users who opt for this service have their seed phrase divided into three encrypted fragments called “shards.” These shards are stored with three separate parties: Coincover, Ledger, and an independent backup service provider.

While appearing on Peter McCormack’s What Bitcoin Did podcast, Gauthier acknowledged that the Recover update could potentially disclose users’ seed phrases to government entities. However, he emphasized that such access would be limited to “serious acts” like drug-related crimes and terrorism.

Ledger’s Legal Restrictions on Open Sourcing Firmware Code

Gauthier stated that it is not common for the average person to receive subpoenas regularly. McCormack, the podcast host, challenged this statement by citing the case of Coinbase, which was subpoenaed by the United States Internal Revenue Service in 2018 and compelled to provide the personal information of 13,000 users.

Gauthier dismissed the example as an inaccurate comparison. Ledger, unlike Coinbase, is not a bank and is not bound by the same legal restrictions as the crypto exchange.

Exciting update, Ledger has a new product, Ledger Recover, that’s launching soon: https://t.co/nT1VHnnSYz

?Here’s what Ledger Recover is and what it isn’t, explained by @P3b7_ & in the thread below. pic.twitter.com/RW1w07H6pK

— Ledger (@Ledger) May 16, 2023

Are concerns exaggerated? Ledger representatives argue that these concerns are largely blown out of proportion. Ledger clarified that the new Recover update does not alter its core value proposition of self-custody and self-sovereignty. It’s entirely optional for users to decide if they want to subscribe to the Ledger Recover service.

Ledger reassured users that Ledger Recover doesn’t change the core value of self-custody and self-sovereignty. The original seed phrase stays on the device and doesn’t leave it. With Ledger Recover, users can create an encrypted and shared backup. Restoring the backup on a Ledger device is necessary for decryption. Multiple parts are needed for decryption, ensuring security. Decryption can only be done on a Ledger device.

In addition, Ledger cannot open-source the firmware code for its “secure element” chip due to legal constraints from the chip manufacturer. However, Ledger plans to gradually open source more of its code, aiming for a level of openness similar to that of the Raspberry Pi. Only a small portion of the code related to the Secure Element will remain closed, as required by legal obligations. If you decide not to use Ledger Recover, it will not significantly impact your user experience or usage of Ledger products.

Ledger Recovery: Securely Storing Recovery Phrase Fragments

The Ledger Recover update lets users securely store their encrypted recovery phrase fragments with third-party entities. However, this feature deviated from the perception of Ledger as a fully trustless service for protecting cryptocurrencies.

Concerns arose regarding potential security vulnerabilities due to the involvement of external parties in the backup process. In a Reddit post, Ledger co-founder Larchevêque clarified that Ledger was not intended to be entirely trustless and that trust in the hardware wallet manufacturer is necessary for proper usage.

Larchevêque reassured users that the Recover firmware update did not compromise the overall security of the hardware wallet and confirmed the absence of a backdoor. He maintained that Ledger remained a secure option for storing cryptocurrencies.