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How Can You Sign Online Transactions When Your Private Key is Offline? 

Read 4 min
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KEY TAKEAWAYS:
— Cryptocurrency is inherently online with blockchain transactions living on the internet.

— Hardware wallets are designed to keep private keys off the internet and away from the online connection points that hackers can get to. So how can online transactions be signed?

— Ledger uses a system to approve transactions in separate stages, keeping your private keys offline.

If you have a Ledger hardware wallet, you likely know it generates and stores your private keys offline. The key selling point of any hardware wallet?  They don’t connect to the internet at all— not ever. 

However, the blockchain keeps running due to an internet connection. Your web3 apps all rely on an internet connection. Broadcasting a transaction to the network requires an internet connection. 

At first glance, it seems as if every step of the process relies on an internet connection. So you may be wondering, ‘How do hardware wallets interact with these online dApps and marketplaces if they are always offline? And how do they send transactions to the blockchain?’

But fear not– in this article, we’ll explain exactly how transactions happen within your Ledger device, and how they let you interact with online platforms without revealing your keys. Let’s dive in.

How can you sign online transactions when your private key is offline? 

Put simply, the transaction process of your Ledger device is split into steps: an “offline” part and an “online” part. This process ensures your private keys remain private.

For a full explanation, check out the article on how a Ledger device works. But essentially, while your Ledger device handles the signing of transactions, it cannot broadcast transactions itself. Instead, it relies on the internet connection of another device, the same device responsible for hosting Ledger’s companion app Ledger Live. 

It’s this internet-connected device you initiate the transaction with via Ledger Live. From there, Ledger Live can connect and send the transaction information to your device.

When you sign a transaction, the process takes place within the Secure Element, a tamper-proof computer chip inside the physical device. This is the most crucial part of the transaction, as hackers can tamper with a transaction before it is signed. But with a Ledger device’s Secure Element chip, you can rest assured the signing process is out of a hacker’s reach.

From there, your device will send the already signed transaction to your internet-connected device via a USB cable. Since the transaction is already signed it cannot be tampered with – even if your internet-connected device is infected with malware.

At this point, the transaction can be sent back to the wallet’s interface on the laptop or smartphone and broadcast to the blockchain with confidence.

Why not sign the transaction with a computer or smartphone if we need an internet-connected device anyway? 

There’s one simple answer to that question: malware. If you use a crypto wallet directly on an internet-connected device, a wallet typically named a hot wallet, you are vulnerable to online threats such as malware. 

Malware can come in many different forms: it could aim to discover your seed phrase or private keys or it could aim to take control of your laptop or smartphone’s screen, convincing you to sign malicious transactions. While malware can be installed on your computer physically, remote hacking is much more prevalent. 

Unfortunately, hot wallets, the crypto wallets you install directly on your smartphone or laptop, are extremely vulnerable to these types of threats. In short, a hacker who gains access to your internet-connected device can quickly find your private keys and empty your wallet. This is due to where hot wallets store private keys: directly on the host device, or in some cases, even in the browser’s data store. Simply, it’s too easy for a hacker to find and exploit.

Without trying to alarm you, using a hot wallet for any significant amount of crypto is like an open invitation for scammers.

Your Internet-Connected Device and Your Ledger Device Work Together

Interacting with web3 platforms, applications, and services, requires an internet connection. But to keep your keys safe, it’s imperative to keep them offline. These two facts can work against each other. Understandably, if you want to interact with decentralized apps, the convenience of an online wallet may sound appealing.

However, what’s the point of crypto ownership if your funds aren’t secure? Security is one of the most important and often overlooked parts of interacting with the crypto space.

Ledger is dedicated to making secure self-custody easy to use, which is why Ledger wallets allow you to sign transactions offline while offering a simple and expansive ecosystem of crypto apps and services via Ledger Live. In short, with Ledger, you get the best of both worlds: security, ease of use, and true ownership. 

Because if not self-custody, then why crypto?


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