Crypto CEOs debate risks and usability in self-custody wallets after hardware flaws

Crypto industry leaders remain divided over whether self-custody solutions were ever truly intended for beginners, as safety concerns and usability challenges continue to emerge around hardware wallets and related approaches.

Diverging views on who self-custody is built for

Safe Labs, a technology company specializing in cryptocurrency asset protection, is under the leadership of CEO Rahul Rumalla. Rumalla stated that expecting every cryptocurrency holder to be a security expert is unrealistic, drawing an analogy to how drivers are not required to be mechanics. He emphasized that the core of digital assets is enabling individuals to own and manage their assets directly, regardless of technical expertise.

However, Michael Tanguma, CEO of Bitcoin custody provider Onramp, compared the experience of self-custody in Bitcoin to early personal computers in the 1970s, which demanded significant technical knowledge from users. Tanguma suggested that simplified user experiences, similar to those that eventually brought computers to the mainstream, are critical for crypto adoption. He commented that self-custody “was never designed with newcomers in mind,” in contrast to Rumalla’s view that it is meant for everyone.

Rumalla argued that direct ownership is essential to the very concept of crypto, noting that “being able to own and control your assets is the whole point of crypto,” but emphasized self-custody “does not mean doing everything yourself.”

The ability to “be your own bank” remains central to Bitcoin’s appeal, but making self-custody safer and more accessible for less experienced users is seen as vital for broader adoption. This issue has become more pressing after recent security incidents affecting leading hardware wallet brands.

Hardware wallets under scrutiny after security incidents

Ledger and Coldcard, well-known manufacturers of hardware wallets, recently faced technical issues that raised questions about their reliability. Hardware wallets are devices designed to hold crypto private keys offline, and are often considered among the safest storage methods.

Some Ledger devices were found to contain unauthorized implants that stole users’ recovery phrases, while a Coldcard firmware bug reportedly allowed attackers to reproduce private keys, potentially resulting in loss of funds. These incidents have spurred renewed discussions about the trade-offs involved in custodial security.

Mini dictionary: Ledger is a leading manufacturer of hardware wallets for digital assets. Coldcard is a hardware wallet brand focused primarily on Bitcoin, recognized for its emphasis on advanced security features and open-source firmware.

Multisignature wallets: security with complexity

Multisignature wallets, also known as multisig wallets, require approval from several independent keys to process a transaction. While these wallets offer enhanced protection by spreading authorization, they can be complicated to manage, especially for less experienced users.

Justin Hutzler, chief technology officer at Synergy Network, highlighted that traditional multisig solutions introduce extra complexity, such as coordination among signers, managing key backups, establishing recovery methods, and securing transaction approvals.

Moreover, requiring multiple approvals does not eliminate every risk. If all signers approve a fraudulent transaction via a compromised interface, security can still be breached. Rumalla noted that attackers can still deceive all signers if the user interface or software they use is compromised.

Seedless wallets: a different approach, new risks

Tangem, a company producing crypto wallets, has introduced a seedless design that discards the traditional recovery phrase. Instead, access relies on safeguarding physical devices, such as smart cards, that store the cryptographic keys. When setting up a Tangem wallet, a private key is created on one card, with optional backups available on two additional devices. Tangem confirmed that if all cards are lost, access to the funds is lost permanently. The company stated it has not received any reports of users losing access to all their devices.

However, this approach does not mitigate all threats. Zach Herbert, CEO of Foundation, another hardware wallet manufacturer, said seedless wallets can maintain user control but criticized Tangem’s absence of a built-in screen. Without a screen, users must confirm transaction details via their smartphones, increasing the risk of being tricked by malicious software.

Herbert added that attackers do not need to extract private keys if they can deceive users into approving harmful transactions that transfer assets out of their wallets.

Mini dictionary: Tangem is a Swiss-based firm that manufactures hardware wallets with a focus on physical, card-like devices and seedless recovery, aiming to simplify crypto storage and reduce dependency on written backup phrases.