Digital Cash

Ledger Nano

Why use a hardware wallet like the Ledger?

The affordable little ledger devices are not the best user experience. But it’s worth getting over the pain because they single-handedly protect everything in your crypto wallet in a brilliantly simple way.

Why its important?

First up, a very quick overview of how crypto/blockchain wallets work.

Your wallet software or hardware wallet does not actually hold your cryptocurrency, NFTs or anything else from the blockchain. The blockchain itself stores them in a wallet that everyone can see, but only you can control.

Only you can control it, because only you know the seed phrase that was used when the wallet was first created for the blockchain.  The seed phrase for your wallet is the most important thing to keep safe. If you ever lose it you’ll never be able to set up a new device to access that wallet on the blockchain (literally – this is blockchain, it’s literally impossible for anyone to if a seed phrase is lost, including the blockchain creators!)

Even more importantly – if anyone else ever gets hold of your seed phrase, they can instantly transfer everything out of your wallet and into their own.

So, this is important stuff and quite different from how your traditional bank works. In crypto, it’s called “self custody” of your funds, which simply means you and you alone are responsible for protecting the seed phrase to your wallet. Sounds scary? Well it is, but it’s also very liberating because only you have control of your wallet and everything you store in it and no one can stop you from using it in any way you choose.

So, as to why might you want to use a hardware wallet like the Ledger? Well, because it’s fantastic at protecting your all-important seed phrase!

Hardware wallet misconceptions

There’s some really confusing terminology used with hardware wallets, such as a Ledger wallet, that can confuse the hell out of newbies.  Here are the basics:

Hardware wallets do not store your coins

They store the seed phrase for your wallet, nothing more. They have no knowledge of the balance of your wallet or transactions that deposit in your wallet. They do just two things:

  1. They provide the wallet address when you first want to add the wallet to wallet software on your computer or phone.
  2. They sign transactions using your secret seed phrase when you want to send anything out of your wallet to somewhere else, but without revealing it.
If I lose my hardware wallet I’m screwed?

No, if you lose your seed phrase you are screwed. Without your seed phrase you will never be able to set up a new hardware wallet device, should your existing hardware wallet die or be lost.

In fact, you can set up as many hardware wallet devices as you like with the same seed phrase and any of them can be used to sign your transactions for the same blockchain wallet.

My hardware wallet manufacturer backs up my wallet

Unless you pay for a special backup service that some providers such as Ledger offer, no they don’t. They manufacture the hardware wallet device, nothing more. When you use the manufacturers’ software the only communication it does back to the mothership (via the cloud) is when there are software updates for it.  It does not pass your seed phrase back to Ledger, Tezos, etc. It is your responsibility to store your seed phrase somewhere safe. If you’re not paying for their service to back it up, no one else stores it for you just in case.

I can only use my hardware wallet with the manufacturer’s wallet software

No, you can use it with any wallet software that supports your hardware wallet device. For example, you can buy a new Ledger and create a wallet with it using the Ledger wallet software, or Eternl, or Flint, etc. You can add the wallet to just one of them, or to all of them. They all will be showing you the same wallet on the blockchain, they are just different software options accessing the same actual blockchain wallet (a bit like using different web browsers, e.g. Edge, Chrome, Safari, etc to view the same website).

Why are hardware wallets so essential?

You don’t need a hardware wallet to use a blockchain, you can just create a wallet directly using a computer and any wallet software. So why spend money and have the inconvenience of a hardware wallet?

OK, we’re going to get a little bit technical here, but if you want to know the why then it needs to be said as it is…

When you want to send anything from your blockchain wallet to somewhere else – so send your money, your NFTs, etc, the wallet software has to sign the transaction using your secret seed phrase. That’s how blockchains work, the transaction is secure because only you know your seed phrase for that wallet so only you can sign any transaction that takes anything out of your wallet. The blockchain doesn’t know your seed phrase, but the incredibly clever cryptography maths behind how blockchain transactions work means that the signing of a transaction can only have been possible if the wallet seed phrase was known by whatever signed it. 

That’s smart, it’s why geeks get moist about blockchain technology, but the catch is if you don’t use a hardware wallet, like a Ledger, then your computer needs to have your seed phrase to be able to sign your transactions. It can be super clever, do things like encrypt it and do all sorts of other things to try and protect it – and indeed that’s what wallet software does do. But at the end of the day it needs to know it so that seed phrase is vulnerable to malware that might have infected your computer. Can you say with absolute certainty that your computer does not have any malware on it?

There’s also the additional risk, even without malware, of needing to trust that the wallet software developers have done an excellent job in protecting your seed phrase.

And that’s all without the possibility that you accidentally download fraudulent wallet software that has been designed to trick you and simply steal your seed phrase as soon as you enter it (sadly so many people fall for this one).

This is all really boring stuff to most people, something most would rather not think about, but the reality is that lots of people have malware on their computers and don’t know it, plus software developers aren’t perfect and do sometimes make mistakes too. There have sadly been plenty of instances of malware stealing seed phrases and even wallet software accidentally leaking seed phrases.

A hardware wallet is such a good solution because it stores your seed phrase and never reveals it to your wallet software. How? Because when your wallet software needs to authorise a transaction it doesn’t actually need the seed phrase itself, it just needs the transaction to be signed using the seed phrase, to produce the publicly readable hash that shows it was signed using the seed phrase.

Because it’s a separate dedicated device with just one job, hardware wallets like the Ledger have a much easier time making sure they can’t be hacked to reveal that all-important seed phrase.  That’s why they are so safe and why you should always use one for any wallet that stores money or digital items that are valuable.

OK I'm in, what do I need to do?

Buy yourself a Ledger (other hardware wallet manufacturers are available, but on this page we’re focusing on the Ledger as they are the market leader). They are well trusted and well supported by lots of blockchain applications. Buy it direct from Ledger themselves, so you can be totally sure its the real deal and not been tampered with.

The cheapest Nano S is fine if you can connect to the Ledger using USB, e.g. you will use your desktop computer for your wallet. The more expensive Nano X has Bluetooth so can be more convenient when used with a mobile phone or tablet. The Stax is their new nicer UI but more expensive device.

When you get it and first turn it on fresh out of the factory the first thing it will do is create a new seed phrase just for you. (It doesn’t need to connect to the blockchain to do this, seed phrases are based on such massive numbers that any randomly generated seed phrase will always be unique on the blockchain).

Write down this seed phrase (using pen and paper – never enter it into any computer or take a photo of it). If you ever lose the ledger, if you mess up entering its pin number or if it’s stolen then you’ll need that seed phrase to set up a new one. The seed phrase is all important. You must never lose it or reveal it to anyone else. It’s literally the keys to the kingdom and no-one else can help you retrieve it if it’s lost. If that scares you too much then consider paying for a service like Ledger Recover, where Ledger back it up fo you (don’t go and use some random third-party seed phrase service – they’ll likely simply steal your seed phrase!!

Once you’ve done that follow the ledger instructions on things like updating its software and installing its plugins for the blockchains you will be using, for instance the Cardano blockchain.

Now setup your wallet software. You can use their wallet software, or any reputable wallet software for the blockchain with it – we have a few on our where to go next page here

In your blockchain wallet software use the “Add new wallet” feature and select adding a Ledger hardware wallet. If you get asked for your seed phrase STOP! You NEVER, NEVER, EVER type your seed phrase into a computer or provide it to anyone else. If you are asked to something is wrong – stop and walk away.

You should simply get asked to connect your ledger and that’s that. It doesn’t need you to authorise anything on the ledger, it simply talks to it and asks for the wallet’s public address (which is created from the secret seed phrase). 

That’s it, you’re good to go. You now have a super secure wallet on the Cardano blockchain (and many other blockchains). It’ll be empty until you send something to it from somewhere else (e.g. ADA from an exchange). Whenever you want to send something from your wallet to somewhere else you’ll need your Ledger to sign the transaction. That’s the only time you’ll need to connect it and follow its prompts.  And remember – if you’re ever asked for your seed phrase what do we do? STOP and walk away! Your Ledger guards your seed phrase for you, there is nothing else that ever needs to use it, your Ledger can sign any transaction on the blockchain for you.

Any gotchas?

Not every wallet app supports hardware wallets. You sometimes come across some wallet software that doesn’t offer the option to use a hardware wallet. This is typically discovered by the wallet software only offering one option for restoring an existing wallet which is to enter its 24-word seed phrase.

Ideally, just use an alternative that does support your hardware wallet. Often this is a case of it being, say, new wallet software or a less well used wallet and the developers haven’t yet gone to the effort of adding in support for hardware wallets.

If you must use it, for instance because some service you want to use requires you to use some specific wallet software for some reason,  then don’t break the rule of never enter your hardware wallets seed phrase into any computer or device. If you’ve got to use it then just create a new wallet instead which will create a new seed phrase just for that new wallet. Then use it with a healthy level of distrust, i.e. be careful how much value you ever transfer into that wallet because it isn’t totally safe like your hardware wallet.


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