The new service called “Ledger Recover” is receiving substantial criticism from the cryptocurrency community. This service divides a user’s recovery phrase into three parts and stores each with third-party companies, such as Ledger. However, several major issues have been pointed out with the storage method this service provides.
The first issue involves trust and centralization. One of the fundamental principles of cryptocurrency is decentralization and self-management. Users completely control their assets by holding their private keys or recovery phrases. By entrusting part of the recovery phrase to a third party, control is centralized to some extent, and these companies must be trusted. This can be seen as contrary to the philosophy of cryptocurrency, and therefore, is subject to criticism.
The second issue is security risk. Partially splitting the recovery phrase and storing it separately can add a layer of security, but it also introduces new risks. If the third-party companies are hacked or engage in malicious activities, users’ assets could be jeopardized. Furthermore, the process of transmitting and storing parts of the recovery phrase could also be vulnerable to attacks.
The third issue involves legal and regulatory concerns. Depending on the jurisdiction involved, legal and regulatory issues may arise for third-party companies holding parts of users’ recovery phrases. For example, in some jurisdictions, these companies may be considered custodians, and specific regulations may apply.
The final issue is complexity and user error. The process of dividing the recovery phrase and managing the parts stored by different companies can increase complexity for users. This could lead to a higher potential for user error, which might result in the loss of access to assets.
These points are based on the general principles of cryptocurrency security, and it can be understood why services like Ledger Recover are criticized by the cryptocurrency community. Users must carefully consider the best method for managing their recovery phrases to protect their assets and privacy.
Update: According to Ledger’s response, the split seed phrases can only be decrypted on the user’s Ledger device after the user has gone through ID verification. And Ledger insists that companies storing the seed phrases can never access the full recovery phrase of the user. If true, this may alleviate some security concerns related to third-party access. However, without detailed information about the operation and security measures of Ledger Recover, it is challenging to verify this claim.
The requirement for ID verification and linking identity proof with seed phrases brings additional concerns. This may introduce new potential vulnerabilities, and if ID verification data is compromised, users might be exposed to identity theft risk. Furthermore, linking an individual’s identity to a cryptocurrency wallet goes against the principle of anonymity, which is highly valued in the cryptocurrency community.
In conclusion, while Ledger’s response addresses several concerns, the controversy around Ledger Recover highlights the complexities and potential risks of managing recovery phrases. Users should carefully consider these aspects and make decisions based on the best information available on how to protect their cryptocurrencies.