Lessons of a $37M Attack: How a Ukrainian Payment Processor Was Hacked


The firm lost money anyway. Most of the stolen funds, in a form of USDT on the Tron blockchain, were swapped for the USDT on Avalanche via cross-chain bridges and then sent to a decentralized exchange SwftSwap, Krupyshev said. Attackers also used decentralized exchanges Uniswap and SunSwap, as well as centralized exchanges Binance, Huobi, Kucoin, Bybit, Bitget and MEXC, according to the post-mortem blog post.

Bitget Exchange Sued by Advisor of ReelStar Token Project After the Listing Goes Sour


“Since October, I haven’t got any tokens so it was very fair for me to sell,” he said in an interview, adding that before the listing, he received 7.5 million tokens and 1.3 million of them he sold on Bitget. He was also selling some on two other exchanges, MEXC and Gate, he added, and those two had zero problem with that.

Want to Mine Bitcoin at Home? DIY Bitcoiners Have Stories to Share


Now, his farm has 80 ASIC miners hashing new blocks for the Bitcoin, Zcash, Litecoin, and Dogecoin blockchains, and multiple racks of GPUs and central processing units (CPUs), most of which are dedicated to Chia. Altogether, they consume one megawatt of power and $20,000 a month in power electricity bills.

Ukraine Has Raised $225M in Crypto to Fight Russian Invasion, but Donations Have Stagnated Over the Last Year: Crystal


This low-profile character of fundraising, together with the broad global condemnation of Russia’s actions, might be the reason for much smaller amounts raised: Crystal says that crypto donations for the Russian military only brought about $2 million in crypto, though other estimates show higher amounts. In February, Chainalysis found $5.4 million of donations both to Russian military units and to propaganda resources, and Binance told CoinDesk it located over $7.2 million worth of such donations.

Putin Signs Digital Ruble Law Making a CBDC Possible in Russia


The digital ruble, which the Bank of Russia has long been mulling over, will be used for payments along with other methods, according to the new amendments to Russia’s Civil Code. The digital ruble accounts will be managed by the central bank, the law says. The bill passed its third, final hearing on July 11 and had been waiting for the president to be signed.

Ghost From the Well: Is Crypto Mining With Associated Gas Better for the Environment?


That makes producing power expensive. Generators producing 1 megawatt of power from such sources can cost up to $700,000. And for a 10-megawatt farm, it would be $5 million, plus $1 million for installation works, Gerasimovich said. “And then, the oil and gas company says, well, sorry, the gas is not stable,” he added.

ISIS Allies Used Crypto to Raise Millions: TRM Labs


Crypto has been utilized by terrorists and insurgent groups around the world over the past few years. In 2021, global crypto exchange Binance reportedly froze the accounts controlled by the militant wing of Hamas, which accumulated around $80,000 in a single month, CoinDesk reported. Apparently, the traceability of bitcoin led to Hamas abandoning it as a fundraising method in 2023 “for the safety of its donors,” the groups announced in April.

Nexo in Court With a Co-Founder Over $12M in Missing Assets


According to the court judgment by the London’s High Court on June 27, Nexo and its co-founder Georgi Shulev are disputing the whereabouts of a Ledger hardware wallet containing some of the company’s crypto holdings. Shulev, who is a son of Bulgaria’s former deputy prime minister Lydia Shuleva, founded the company in 2019 together with Antoni Trenchev, who used to be a member of Bulgaria’s parliament, and other co-founders, Kosta Kantchev and Kalin Metodiev. Shulev left the company, which provides crypto trading, lending and custody services, in 2019. The legal dispute has been ongoing since 2022.

He Got Arrested in Russia for a Bitcoin Bribe. Now the Coins Are Moving to Exchanges


Another bitcoin wallet, which received 1,032 BTC at the same time as the arrested wallets, remained inactive until Dec. 6, 2022. The remainder of the bribe money that the hackers said they gave Tambiev may have been stored in a third wallet with 654.1 BTC in it, according to Crystal. During 2022, most of those funds moved to centralized crypto exchanges, namely, Huobi, WhiteBit and a little-known Estonia-registered exchange Bitexbit, Crystal’s data show.

Crypto Ponzi Schemes Cost Victims $7.8B in 2022: TRM Labs


In some corners of the criminal underworld, bitcoin is still king, for example, Russian darknet marketplaces, which are dominating the sector (80% of the market), mostly accept bitcoin only as payment for narcotics and other illegal goods. Large Western marketplaces of this kind often accept monero as well, but their share in the overall darknet economy is much smaller, TRM wrote.

Silicon Valley: The Mecca for Venture Capital May Be Cooling on Crypto


Silicon Valley was the second-highest ranked U.S. hub in CoinDesk’s Crypto Hubs 2023. Several of the eight criteria were measured on a national basis, so all the U.S. hubs were hampered by a middling crypto regulatory score, a drivers criteria, which at 35% was the most heavily weighted overall. This poor performance was partially offset by the U.S.’s high crypto adoption score, another drivers criterion, represented 10% of the overall score. Among the U.S. hubs, Silicon Valley generally trailed Wyoming just a hair in opportunities, which is based on per-capita rate of crypto jobs, companies and events. Due to its high cost of living, Silicon Valley suffered from a lower quality of life score, weighted 15% and a measure within the enabler category. But the coastal Silicon Valley area had the upper hand in other enabler measures including digital infrastructure and ease of doing business.

Wyoming: Regulatory Clarity and Crypto-Friendly Banks Fuel Blockchain Revolution


Surprise! Wyoming is the top-ranked U.S. hub. Many of CoinDesk’s Crypto Hubs 2023 criteria were measured on a national basis, so all of the U.S. hubs were hampered by a middling crypto regulatory score, a measure in the drivers category and the most heavily weighted criteria – 35% – of the total. This negative was partially offset by the highest crypto adoption score (another drivers criteria) in our sample, however. Given that the regulatory and adoption scores were based on countries, Wyoming broke from the U.S. pack with its high quality of life (at 15%, the second-heaviest weighted criteria, and part of the enablers category) and other individual measures. The least populous U.S. state benefited from its eye-popping per-capita figures for crypto, blockchain and Web3 jobs, companies and events, which comprise the opportunities category.

This Is How Scammers Can Drain Your Crypto Wallet


In a similar scam to the one mentioned above, attackers attempt to trick users into interacting with various decentralized applications (dapps), including decentralized exchanges (DEXs). Such schemes often create an illusion of a new lucrative opportunity, like an airdrop of some new token, and exploit the common tendency to fall for FOMO, or the fear of missing out, Seifert said.

Blockchain Security Firm CertiK Found an Infinite Loop Bug in Sui Network


“Differing from traditional attacks that shut down chains by crashing nodes, the HamsterWheel attack traps all nodes in a state of ceaseless operation without processing new transactions, as if they were running on a hamster wheel. This strategy can cripple entire networks, effectively rendering them inoperable,” CertiK said in a press release on Monday.

Mining Pools Are the New Mixers For Cybercriminals: Chainalysis


Although the funds always came to the exchange via intermediary wallets, Chainalysis found instances in which the wallet receiving ransomware proceeds sent funds directly to the mining pool wallet, which then sent the coins to the exchange. This might mean that both the ransomware- and mining-related wallets belong to the same owner, who is using mining as a way to launder criminal funds, Chainalysis wrote.

Police in Estonia and Kazakhstan Investigate Atomic Wallet Hack


Atomic Wallet users lost over $100 million worth of crypto in bitcoin (BTC), ether (ETH), tether (USDT), dogecoin (DOGE), litecoin (LTC), BNB and polygon (MATIC) in the first weekend of June, blockchain intelligence firm Elliptic said in a blog post with updated estimate on Tuesday. According to the firm, over 5,500 wallets had been compromised in the hack. Elliptic earlier said that North Korean hacker group Lazarus might have been responsible for the theft.

‘The Industry Doesn’t Want the Answers.’ Josh Klayman on Coinbase and Binance


“If you need money to be able to fight a multi-year [legal] fight, and you’re making money a certain way, there are two questions,” Klayman says. “On one hand, maybe you continue doing what you’re doing to fund your defense. On the other hand, if you make any changes [to your business], will the SEC say that this was an admission that you did something wrong?”

Where the Mt. Gox Money Went: New Details in the BTC-e Exchange Case


New unsealed court documents shed fresh light on what happened with the massive amounts of bitcoin stolen from Mt. Gox, the bitcoin that was hacked spectacularly starting in 2011.

The two unsealed indictments offer a rare glimpse into the U.S. law enforcement investigations into two of the oldest bitcoin companies, Mt. Gox and BTC-e.

According to the indictment unsealed on Friday, Mt. Gox was hacked not long after the exchange was founded in 2010 by two Russian nationals, Alexander Verner and Alexey Bilyuchenko, as well as their unnamed co-conspirators. With most of its crypto gone, Mt. Gox declared bankruptcy in 2014.

In 2011, Verner and Bilyuchenko got access to the Mt. Gox users’ data and transactions database, along with the private keys for the exchange’s crypto. Between 2011 and 2014, Verner, Bilyuchenko and the unnamed co-conspirators funneled no less than 647,000 bitcoin out of the Mt. Gox wallets, the indictment released this week says.

Fully 300,000 of those coins went to BTC-e, another now-defunct crypto exchange. BTC-e was shut down by the FBI in 2017, and the exchange’s alleged operator, Russian national Alexander Vinnik, was arrested in Greece and later extradited to the U.S. to face charges for “computer intrusions and hacking incidents, ransomware scams, identity theft schemes, corrupt public officials and narcotics distribution rings.”

Bilyuchenko was the administrator of BTC-e, according to the criminal case involving him in Russia. According to his testimony, cited in the book of a Russian investigative journalist Andrey Zakharov, Verner was responsible for technical development of BTC-e. Bilyuchenko was reportedly arrested in Russia in 2019, but the whereabouts of Bilyuchenko and Verner today are not known.

CoinDesk - Unknown
Convicted Silk Road operator Ross William Ulbricht

A separate indictment unsealed this week shows that Verner and Bilyuchenko transferred the bitcoin they stole from Mt. Gox to BTC-e, TradeHill (another early bitcoin exchange shut down in 2013, according to Investopedia) and their own accounts at Mt. Gox itself.

To liquidate the stolen bitcoin, Verner and Bilyuchenko used U.S. companies, the indictment says, though the document does not name particular firms that might have been involved. The investigation report unsealed by the Department of Homeland Security (DHS) this week mentions transactions between BTC-e and BitInstant and Memory Dealers, two early and now-defunct bitcoin companies.

BitInstant was a crypto exchange founded by Charlie Shrem, who in 2014 was sentenced to two years in prison for money laundering charges. Memory Dealers was a bitcoin-friendly computer hardware vendor run by Roger Ver, the founding father of the Bitcoin Cash cryptocurrency.

Between April and November 2013, Verner and Bilyuchenko received $2.5 million from BitInstant and Memory Dealers to a bank account of BTC-e’s shell company, the Seychelles-registered Canton Business Corporation, according to the DHS.

The wire payments from BitInstant and Memory Dealers were labeled as an “Internet Advertisement Agreement,” but BTC-e did not provide any advertising services to BitInstant or Memory Dealers, the investigators found. The BTC-e operators would also send money from their bitcoin sales through multiple PayPal accounts to conceal their origins, the report says.

From March 2012 to April 2013, a crypto exchange named in Verner and Bilyuchencko’s indictment as “the New York Bitcoin Broker,” sent about $6.6 million to the hackers’ bank accounts in exchange for “credit” on BTC-e. It’s not known what firm that was exactly.

BTC-e also used the Australia-based forex exchange FX Open and U.K.-based Mayzus Financial Services for transactions with fiat money, the documents say.

Unsealing the history of BTC-e

The unsealed indictment also clears the names of several people who previously have been considered by the investigators as Vinnik’s co-conspirators in running BTC-e.

According to the previous version of Vinnik’s indictment filed under seal in 2016, the Department of Justice earlier believed that Vinnik had a co-founder, named Andrey Nikonorov, as well as co-owners of the BTC-e shell company, Seychelles-registered Canton Business Corporation, Alexander Buyanov and Stanislav Golovanov.

However, the new version of Vinnik’s indictment says that Nikonorov, Buyanov and Golovanov actually did not participate in the criminal activities related to BTC-e, but rather, Vinnik used their identities to cover his tracks, the DOJ attorney Ismail Ramsey wrote.

“When conducting business related to BTC-e, Defendant Alexander Vinnik made efforts to

conceal his true identity. This included appropriating the identities of Andrey Nikonorov, Stanislav Golovanov, and Alexander Buyanov,” the document reads.

Andrey Nikonorov, who was also a co-founder of the ZrCoin crypto project, told CoinDesk today he knew Vinnik but was merely a user of BTC-e and provided the exchange with his identifying documents to be able to conduct a bank transfer. He also believes that Vinnik himself was just an employee of BTC-e who did not come across as a wealthy business owner at all.

Russian news outlet RBK talked to Alexander Buyanov for an investigation into BTC-e in 2017, and Buyanov, who was a DJ at a Moscow nightclub at the time, told the outlet he did not know anything about BTC-e before the news of its shutdown and Vinnik’s arrest.

Mt. Gox, Silk Road, Fancy Bear

BTC-e was an exchange powerhouse back in the day, and a big part of its money came from various crimes, the DOJ says. Starting in 2011, the exchange served about 700,000 users and its bitcoin wallet received over 9.4 million BTC before December 2016, the DOJ said.

Users included the ransomware gang CryptoWall and Fancy Bear, the hacker group believed to be sponsored by GRU, Russia’s military intelligence agency. Fancy Bear hacked the computer systems of the Democratic Congressional Campaign Committee and the Democratic National Committee during the 2016 presidential campaign. The hackers used BTC-e for their crypto dealings, as well as two other, unnamed crypto exchanges, according to the blockchain intelligence firm Elliptic.

Other high profile users were Carl Mark Force and Shaun W. Bridges, the two FBI agents convicted for misappropriation of crypto from the Silk Road investigation. The former agents sent “several hundred thousand dollars in criminal proceeds” each to BTC-e, the unsealed indictment for Vinnik reads.

“Their experience with the criminal underworld taught them that using BTC-e, as opposed to a registered exchange with anti-money laundering policies, would maximize their chances of being able to conceal criminal proceeds,” the document says.

Silk Road was a popular darknet marketplace offering a wide range of illicit drugs for purchase with bitcoin. Silk Road was busted by the FBI in 2013, and its founder Ross Ulbricht was sentenced to life in prison in 2015 on charges for narcotics trafficking, money laundering, computer hacking and trafficking fraudulent identity documents.

As the FBI investigated the Silk Road, the two rogue agents saw a chance to make money for themselves. Carl Force offered Ulbricht fake drivers’ licenses, as well as insider information on the government’s investigation into Silk Road, in return for 925 bitcoin, which he received and used for his own benefit, according to a criminal complaint filed under seal in 2015 by then IRS special agent Tigran Gambaryan (now Binance’s head of financial crime compliance).

Bridges, in turn, got access to the wallets containing Silk Road’s treasury while being a part of the FBI’s investigative team, and stole 1,600 bitcoin from those wallets. Force was sentenced to six years in prison 2015; Bridges got two years behind bars in 2017.

Force and Bridges sent their ill-gotten crypto to exchanges CampBX, Bitstamp and Mt.Gox. As for BTC-e, they used it to further cover their tracks, documents show.

The new documents come to light as Alexander Vinnik is trying to return to his home country, Russia.

Alexander Vinnik and his lawyer David Rizk convinced the Northern District court of California to unseal more documents in the case as they believe making the case more public will help advocate for Vinnik’s prisoner swap with Russia, according to the court file. Vinnik might be swapped with Evan Gershkovich, the Wall Street Journal reporter detained in Russia under espionage charges, the newspaper wrote in May.

Vinnik has spent almost five years in detention abroad. He was first detained in August 2017 in Greece while on vacation with family, then extradited to France and ended up in the Santa Rita prison in the U.S. in August 2022.

He faces charges including operation of an unlicensed money services business, conspiracy to commit money laundering, money laundering and engaging in unlawful monetary transactions. If convicted, Vinnik could face a maximum penalty of 55 years in prison.

Atomic Wallet Was Breached by North Korean Hackers: Elliptic


ZachXBT, a pseudonymous blockchain sleuth, estimated that around $35 million in various cryptocurrencies had been stolen, including bitcoin (BTC), ether (ETH), tether (USDT), dogecoin (DOGE), litecoin (LTC), BNB coin (BNB), polygon (MATIC) and Tron-based USDT.

Gary Gensler’s Evolving Position on Crypto – in Quotes


Around the same time, Gensler said in his Congress testimony that the U.S. government, together with the Congress, should come up with more definitive rules for crypto. “I believe that the SEC, working with the CFTC and others, can stand up more robust oversight and investor protection around the field of crypto finance,” Gensler said.

CoinDesk Turns 10: 2022 – How Crypto Gods Turn Into Monsters


“Sam Bankman-Fried was a true celebrity in crypto, and once you’re that level of famous, people kind of assume: yeah, he must be legit,” says Tracy Wang, one of CoinDesk’s award-winning journalists who, together with Ian Allison, lead the coverage of FTX’s crash.

Ledger’s PR Struggle Reveals Uncomfortable Trade-Offs for Crypto Storage


After a week of controversy around its new seed-recovery service, French wallet-maker Ledger has been on a PR offensive, including a Twitter Spaces event with Ledger CEO Pascal Gauthier on Tuesday afternoon and appearance by the same executive on CoinDesk TV Wednesday morning.

The message? Ledger has listened to its critics and is prepared to make changes to its approach.

“Everybody is very sad at Ledger when you yell at us. But it’s okay because we get better and we will always strive to be good servants of the community,” Ledger CEO Pascal Gauthier said during a Twitter Spaces session on Tuesday afternoon.

The yelling in question was the criticism Ledger faced after announcing its upcoming key recovery service. The service will allow users to keep an encrypted backup of their wallets with a set of three custodians, including Ledger itself. Many Ledger users and observers questioned the safety of the proposed service regarding potential hacks, user data leaks and abuse of trust by Ledger itself.

On Tuesday, Ledger published a letter saying that it heard its users’ concerns and decided to change course: it will open-source the Ledger Recover code before launching the service, Gauthier wrote.

In addition to that, Ledger will offer additional security feature to the Recover setup: while the encrypted backup will be stored by three custodians, users will have an option to also create a passphrase, so that even if the custodians collude and recover the private key, they still won’t be able to move funds without the passphrase.

Ultimately, nothing is 100% trust-less for an average user, Gauthier said in an interview with CoinDesk TV Wednesday morning.

“There is always a minimum of trust that you need to have in any hardware wallet that you’re going to use. And we are trying to make the part of the operating system as the one that you have to trust as small as possible and open everything else,” he said.

To open-source or not to open-source

The decision to open-source the code came as a response to the critics pointing that it’s impossible to audit Ledger’s new feature because the code is not public. However, the open-sourcing pledge comes with a caveat: Ledger will not publish code for all of its firmware for security reasons, the company’s CTO Charles Guillemet said in a Twitter thread.

The smartcard chip in the Ledger wallet, which is where all the operations happen and users’ private keys are stored, have built-in protections against physical tampering, Guillemet wrote. “Because this know-how is the IP of manufacturers, they don’t want it leaked, preventing Ledger’s firmware from being fully open source,” he added.

Ledger will “gradually open-source” most of its operating system, starting with the controversial Ledger Recover feature, Guillemet wrote, but “the other parts will take a little more time since it needs to be refactored to abstract the chip-specific characteristics under NDA from our OS.”

Ledger does not believe that open-source is a “silver bullet for security,” the firm’s co-founder Eric Larcheveque said during the Twitter Spaces. “We chose closed source because we believed it brings a higher level of security,” he added

Guillemet also said that ultimately, even with the open sourced code, users have to trust the wallet manufacturer – Ledger or else – with the safety of their crypto. Otherwise, users would have to build their devices from scratch, including all the physical parts, the code and the compilers turning that code into working apps, Guillemet said, and that’s obviously not an option for the “millions of users” Ledger wants to onboard in the coming years.

For the same reasons, Ledger did not choose to create a completely new product for the users interested in the key recovery functions, instead making it an opt-in upgrade for existing wallets. Some participants of the Twitter Spaces event said this could be a way to avoid the PR disaster Ledger went through over the new feature.

But making a new product for the new feature would be “a security theater,” Ledger’s chief experience officer Ian Rogers said: “I can take a Ledger and put it in a different box with a different name, but it would still have exactly the same sort of potential threat vector.”

That existing wallets can be upgraded for the new feature was the most controversial part of Ledger Recover. Many observers noted that Ledger’s main selling point has been that private keys never leave the device. And now it turns out that the same devices that are not supposed to reveal the private key actually can broadcast the backup to the outside world.

To add insult to injury, Ledger’s Twitter account responded to this saying that “it is and always has been possible to write firmware that facilitates key extraction” in a Monday tweet that caused outrage and was later deleted.

This should not be a shocker, Guillemet explained during the Twitter Spaces, because that’s the way Ledger works: to interact with different blockchains and smart contracts, the wallet’s operating system must access the private key. And the operating system needs to be upgradeable because blockchains themselves also upgrade and implement new features from time to time.

This means that the programs running on Ledger always could have been changed in a way that concerns private key handling – that’s something a user needs to accept by default, and the fact that users did not realize that came as a surprise for Ledger itself, Guillemet said.

The ghost of the subpoena

Another controversial part of the Ledger Recover is that the service, which is offered as a paid subscription, requires users to go through know-your-customer (KYC) checks. A Twitter user nicknamed @Zk_shark asked whether Ledger will readily respond to any government subpoena requesting data of the Ledger Recover users.

He recalled the infamous case of 2018, when Coinbase complied with the IRS’ request to provide data of 13,000 users. Later, 10,000 Coinbase users received a letter from the tax agency suggesting that they might have failed to properly report their crypto-related taxes. The IRS did not disclose the source of the users’ data.

Gauthier’s response was: if you fear this scenario, don’t use Ledger Recover. However, receiving such subpoenas is not something that is bothering the company. “We don’t think it’s very easy to subpoena a service like Ledger Recover,” Gauthier said.

However, he added, “if you want to be absolutely censorship resistant, you should just not activate the function.”

Crypto Wallet Provider Ledger Delays Key-Recovery Service After Uproar


“We have made the decision to accelerate the open sourcing roadmap! We will include as much of the Ledger operating system as possible, starting with core components of the OS, and Ledger Recover, which won’t be released until this work is complete,” he wrote.

Crypto Hacks Are Down and Hackers Tend to Return Stolen Money: TRM Labs Report


A possible explanation might be increasing regulatory attention to the crypto hacks and a number of high-profile enforcement cases, TRM Labs suggests. First of all, crypto exchanges are ramping up their KYC/AML policies, making it harder to cash out stolen coins. At the same time, the ETH mixing protocol Tornado Cash, which has been one the most popular money laundering tool for Ethereum so far, has been under the U.S. sanctions since August 2022, which automatically backlisted all Tornado-related funds for any regulated exchange.

Dash Blockchain Halts, Binance Pool Suspends Mining Rewards


Several hours later, Dash Core developer Pasta tweeted that the devs had identified issues and were working on a fix. “There are two options we are investigating, and everyone is focused on promptly resolving this issue,” Pasta wrote, adding that the planned release of the latest Dash Core client update, v19, might be delayed to resolve the issues first.

U.S. Sanctions Watchdog Alleges Russia-Linked Crypto Wallet Processed $5M


It’s not clear for what purposes Hanafin and his company used crypto. The wallet designated by OFAC received a bunch of large transactions since Feb. 2022, one for as much as 1,132,000 USDT. Most of the money sent to the wallet came from centralized exchanges like Binance, Huobi, OKX and the now-bankrupt FTX, according to the data on Etherscan.

Is Ledger’s New Bitcoin Key Recovery Feature Safe? Experts Have Doubts


When Ledger, a Paris-based hardware wallet-maker, announced a new key-recovery feature this week, it thought the move would be popular.

Allowing users to recover their private keys – much like you can recover your password if you forget it – would help onboard customers, the company believed. Potential crypto users are known to be turned off by crypto’s unforgiving self-custody ethos (“not your keys, not your coins”). But a key recovery service would offer more comfort.

Immediately, the launch of “Ledger Recover” provoked criticism.

Opponents say that the product isn’t compatible with the concept of a hardware wallet, which promises to ring-fence private keys from prying eyes.

“For a hardware wallet to transmit the seed or shares that can reconstruct the seed over the internet fundamentally alters the security threat model of a hardware wallet,” said Pavol Rusnak, co-founder of SatoshiLabs, which makes a competing hardware wallet Trezor. “In fact, this change is so significant that I’m not convinced it’s a viable solution for a hardware wallet at all.”

The opt-in update, available for Nano X models, allows Ledger owners to use a service named Ledger Recover and share their seed phrase (a sequence of words used to recover a lost wallet) with a set of trusted custodians, namely Ledger, Coincover and EscrowTech. They will store users’ encrypted backups for a monthly fee.

According to the company, this allows users to restore access to their crypto if they forget or lose their seed phrases. By using the service, they would be able to ask Ledger for help, prove their identity and get their private key restored for them.

The critics worry that both the firmware update and the whole recovery setup does not look safe. Ledger insists that things are secure as ever.

CoinDesk looked into how the new feature is supposed to work (as described by Ledger itself) and asked experts what the potential security concerns here may be.

According to Philip Costigan, Ledger communications lead, the new feature does not mean the device itself communicates with custodians over the internet, as the Ledger wallets themselves “have no WiFi or any other internet connection capability.”

To transfer encrypted parts of the seed to custodians, users need to connect their Ledger wallet to their phone with a Ledger app via Bluetooth, Costigan said. The same mechanism is used for approving transactions, when Ledger owners want to spend crypto from their wallets.

Here is how Costigan explains the process: First, users verify their identity with Onfido and Tessi, the two providers Ledger employed for this task, via Ledger’s mobile app.

“Ledger, Coincover and EscrowTech don’t review or hold people’s IDs, it’s done by the technology of the two providers I mentioned above who are experts here,” Costigan said.

After that, the Ledger device gets a prompt to create a backup. Then a backup is created, encrypted, divided into shards using the Shamir’s Secret Sharing technique and transferred to Ledger, Coincover and EscrowTech, Costigan said. Each custodian gets to keep one shard, which are useless on their own.

“All encryption, fragmentation, and decryption of your secret recovery phrase happens on your Ledger on the secure element. So the only thing that leaves the secure element chip, and only after your consent, are the encrypted shards,” he added.

Costigan also underscored that the hardware wallet itself does not store any user’s identity information on it.

When a user requires a recovery, any two out of three custodians will “send fragments back to your Ledger device, reassembling them to build your private key,” the FAQ page on Ledger website says.

The news of the update provoked a storm of criticism from the crypto community, with accusations that Ledger’s new offering contradicts its past statements about keeping private keys off the internet.

In particular, Crypto Twitter piled on the tweet Ledger’s official account posted in November, assuring users of the safety of their devices.

“How can you prove to us the customers that the private keys on the device are not leakable via a firmware update in case someone at the company wants this?” a Twitter user known as @S_Radude asked on Nov. 15, 2022.

“Hi – your private keys never leave the Secure Element chip, which has never been hacked. The Secure Element is 3rd party certified, and is the same technology as used in passports and credit cards. A firmware update cannot extract the private keys from the Secure Element,” Ledger responded.

Users pointed out that the new update does almost exactly what Ledger said they wouldn’t do. There is a caveat: during the recovery process, as Ledger describes it, it’s not the private key itself that is getting extracted but the seed phrase encoding it.

This still sent a worrying signal to the users: what they considered safely stored in a little citadel of their hardware wallet now can leave it and travel elsewhere. What if Ledger decided to just extract and collect users’ seed phrases, without any protection?

“If you can update the firmware to instruct the ‘Secure Element’ to encrypt, shard, and distribute the seed, what stops you from updating the firmware next week to just extract the unencrypted seed,” user @NewWageCrypto asked.

“Technically speaking it is and always has been possible to write firmware that facilitates key extraction. You have always trusted Ledger not to deploy such firmware whether you knew it or not,” Ledger responded on Wednesday in a tweet that has since been deleted.

But the archived copy of the thread shows that the tweet, which immediately triggered a new wave of outrage, was followed by a clarification: for any update to happen, users must manually approve it.

“Every firmware update requires a PIN unlock device approval, this is the final line that makes it impossible for us to extract your keys even if we had your device,” another now deleted tweet from the company said.

However, the questions still linger: what does Ledger’s firmware actually can do and can users still trust their devices?

Crypto developer and researcher Laurence E. Day told CoinDesk that the core of a problem here is that Ledger’s code is closed source, so nobody can review what the update is actually doing. Blockchain security expert Christopher Allen shared similar considerations on Twitter.

“One of my concerns with the new Ledger Recover service is that they appear to be sharding via Shamir’s Secret Sharing, but doing so in a proprietary way and possibly in a naive fashion. We don’t know, as it is not open source,” Allen tweeted.

Looking for Attack Surfaces

For Day, the most worrying part of the situation is an apparent breach of trust between Ledger and its users, triggered by the contradictions in the firm’s statements.

“​​I guess the thing that bugs me here is that there’s this breach of a covenant that seeds would never leave the secure element chip, even though it’s always been possible to do that through firmware (and this remains an option for other hardware wallet suppliers too),” Day told CoinDesk via direct messages in Twitter.

Another issue has to do with privacy. Hardware wallets are typically viewed as a way to store your crypto anonymously, without attaching your name to it.

However, users who opt in for the Recover update will have their identities linked to their crypto wallets, making the experience closer to using a centralized exchange with know-your-customer (KYC) checks.

Head of content for another competitor hardware wallet maker Foundation, going by the nickname Seth For Privacy, tweeted that a setup Ledger is offering means a whole set of concerns for users, including “data leaks, hacks, and government censorship or surveillance.”

“Not only can leaks or hacks occur, the sales of data on users of Ledger would be extremely valuable now and in the future, and any of the ‘authorized third parties’ could decide to leverage your data as an income stream at any moment,” he wrote.

If, in the future, hackers breach Onfido or Tessi, they might get a list of Ledger users, who are likely to own large amounts of crypto (the wallet itself costs about $150 to buy), along with a wealth of their personal data, Seth added.

Ledger has been breached in the past: in July 2020, information of 272,000 users was stolen from the firm, with a series of phishing attacks on users following that breach.

Law enforcement agencies, too, might use the setup to get access to Ledger users’ crypto, Day said: “The three organizations that will hold the shards are known, so they’re liable to get a visit from the feds – so you could argue that by enabling Recover you’re turning your wallet hot even if there are legal steps in between,” he said. (In crypto terms, “hot” wallets are connected to the internet, “cold” are not.)

There is also a danger that, however secure the offered setup is, any system can be gamed, SatoshiLabs’ Rusnak said: “There’s always the risk that someone could use generative AI technologies to impersonate me, obtain my seed shares, and ultimately reconstruct my seed.”

Some commentators on Twitter also voiced concerns that while the feature is optional now, in the future, Ledger might make it obligatory for all devices, for regulatory reasons or else.

Using trusted custodians is nothing new for crypto – in fact, everyone who keeps their coins on an exchange is trusting the exchange like it’s a bank. But hardware wallets embody the “be your own bank” ethos of Bitcoin: that you don’t have to trust an intermediary to keep your money safe.

This means keeping the keys to your crypto on a device that only you control, preferably disconnected from the internet, to avoid the risk of hacking. But this approach requires self-discipline that might feel excessively burdensome to many people. Ledger’s new service attempts to give users some peace of mind, allowing them to recover lost crypto wallets like they would recover stolen credit cards or forgotten passwords (although in a much more sophisticated fashion).

In this sense, Ledger Recover is a kind of compromise between the autonomy of cold storage and the comfort of custodial one: your crypto is on your device, but if you lose it, there is someone to restore it for you. The question is, do Ledger users want that compromise?

“I get the point of why you’d want to offer Recover as a U.X. improvement to mom and pop, but it just feels like a comms screw-up: mom and pop aren’t using these devices anyway,” Day said, adding that hardware wallets users are by default a more sophisticated public.

Ledger, however, believes that moms and pops might just not know they want it yet.

“You’re saying this is not what customers want. Actually, this is what future customers want,” Ledger CEO Pascal Gauthier said during a Twitter Spaces session on Tuesday. “This is the way that the next hundreds of millions of people will actually onboard to crypto.”

Serial Phishing Scammer Uses a Mix of Laundering Techniques, Including Coin Swaps and a Mysterious OTC


According to the researchers, someone has set up the website hitbt2c.lol, mimicking the authentic website of HitBTC, hitbtc.com, and enticed crypto traders to connect their wallets or deposit crypto as onto a real exchange. If the users follow instructions, instead of a legitimate exchange, they would deposit money to scammers’ addresses, and the funds would be gone.

Payroll Startup Rise Wins CoinDesk’s 2023 Pitchfest Contest


To be sure, there is a fair amount of competition in the field Rise is building its business in, with companies like Bitwage, DEEL, Request, Remote, ADP and Utopia, offering fiat and crypto payroll services through U.S.-based exchanges, mostly Coinbase (Rise is not disclosing their crypto broker for now). Some of these services have already onboarded thousands of users, but Finkelstein believes the market is big enough for everyone as more and more companies are getting interested in using crypto for payroll. Current clients of Rise include the Ethereum staking protocol Lido and the DAO governance platform Aragon.