Addressing Self-Custody’s Greatest Misconceptions

Dishwasher, smartphone, blender. The purpose of these products needs little explanation; their name perfectly describes their function. But what about ‘self-custody’ or ‘hardware wallet’? 

Crypto’s language emerged organically, making sense to technically minded early adopters, but the meaning of these terms isn’t obvious to a curious observer today, and the confusing labels attached to core crypto concepts may be holding back adoption. Worse still, misunderstanding when money is at stake creates a fertile ground for scammers. So, let’s address crypto’s biggest misconceptions, replace myth with reality, and keep more users safe.

Fundamental Misconceptions about Self-Custody

1. Where is crypto stored?

Myth – A crypto wallet stores crypto, just like a physical wallet stores credit cards and cash.

Reality – Your wallet doesn’t store your cryptocurrency. Like any form of decentralized value, cryptocurrency is stored on a blockchain – a virtual ledger. Your wallet stores the private keys you use to access that value (which you can recover using a Secret Recovery Phrase).

Going Deeper

This is, perhaps, THE most common myth about crypto, and it’s easy to see why. Use of the word wallet evokes something that literally contains cash. Ask ChatGPT to visualise BTC or ETH, and you’ll see images of shiny physical coins. Humans aren’t comfortable dealing with abstract ideas, like blockchains, and this carries over from the lack of understanding of how traditional (fiat) money works. 

Why this matters 

This misconception may put users off digital ownership completely, worried about carrying their coins around on their phone or device. It also makes users more susceptible to scammers able to exploit the gaps in their knowledge.

However, here’s the most important consequence of misunderstanding where crypto is stored. If you don’t understand that your wallet only stores private keys, why would you think to back up your Secret Recovery Phrase properly? And if you don’t back up your SRP, you’re one accident away from losing everything (If this is leaving you in a cold sweat, read this article explaining best practices for storing offline backups of your Secret Recovery Phrase). Which brings us on to our next big misconception.

2. Lose your wallet, lose your crypto

Myth – If you lose access to your wallet, whether a physical device like a Ledger signer, or a software wallet (Mobile or desktop app), you lose your crypto.

Reality – We know now from myth no. 1 that crypto is stored on the blockchain, not your wallet. So losing access to your wallet or signer doesn’t mean your crypto is gone, but there’s a catch to that.  While wallets and signers store the private keys that give you access to the blockchain, these private keys can be recovered from your 12-24 word Secret Recovery Phrase. If you’ve followed best practice and backed it up, losing your wallet is a minor inconvenience; if not, losing your wallet can mean game over.

Going Deeper

This is why your Secret Recovery Phrase is your ultimate backup. It’s the master key to all your private keys. If you lose or damage your signer, you can simply buy a new one and use your Secret Recovery Phrase to restore access to all your funds on the blockchain.   As long as your Secret Recovery Phrase is secure, your assets are safe. 

This is the entire purpose of self-custody: to be your own bank, with your keys and your backup safely in your control.

Why this matters

This misconception is a huge “adoption blocker.” It creates a fear of loss that discourages people from taking the leap into digital ownership. By understanding that your funds are on the blockchain and are recoverable with your Secret Recovery Phrase, you can confidently secure your assets without the fear of a single point of failure. It removes the anxiety associated with a physical device and reinforces the power of true ownership.

Conversely, those existing wallet users, whether physical or software, who misunderstand the mechanics of digital ownership and focus on the integrity of the device or app, instead of their 24 words, place themselves at risk of loss.

The device is the endgame

Myth: Your hardware wallet is a timeless vault that will last forever.

Reality: While hardware is a core component of a secure ecosystem, it’s not the endgame. Your signer keeps your private keys secure, allowing you to safely sign transactions day-to-day, but like any physical hardware, it has a shelf life. The security of your crypto ultimately rests with your 24-word Secret Recovery Phrase and having appropriate backups. 

Going Deeper

For many, the journey into digital ownership begins with a hardware wallet, but it shouldn’t end there. In the Ledger ecosystem, the signer is designed to be the most secure part of a larger ecosystem. That being said, although our devices have longevity, like any physical technology, they evolve and will eventually need to be replaced. This idea is compatible with secure digital ownership because your 24 words are what ultimately matter. See Myths 1 and 2 above.

Going further, your Ledger signer is designed to work in tandem with Ledger Wallet, which provides a user-friendly interface to manage your assets, initiate transactions, and access the decentralized world without ever exposing your private keys. This is a critical distinction: the signer secures your keys offline, but the software is what makes the experience seamless and accessible. Together, they create a comprehensive, secure system for managing your digital assets.

Why this matters

The myth that your device is the endgame leads users to believe that it acts like a time capsule, immune to physical wear and tear. Ledger signers are manufactured to a high standard, but best practice is to regularly power up your device and ensure that it functions. In the event that the signer does stop working, you need not worry, so long as you’ve followed the golden rule of digital ownership and backed up your 24 words.

When it comes to transacting, assuming your device on its own is enough can result in dangerous behavior like blindly approving transactions or interacting with malicious dApps. By understanding that the device is a single, crucial component of a larger ecosystem, users can better appreciate the importance of using it correctly with secure software, verifying transaction details on the device’s secure screen, and practicing overall vigilance. The true endgame of digital ownership is not just owning a device, but mastering the full, end-to-end process of securing and managing your digital wealth, which ultimately resides on the underlying blockchain(s).

Understanding Private Keys and Secret Recovery Phrases

If you’ve taken on board that myth-vs-reality of misconceptions around digital ownership, you should have noticed one persistent theme – private keys.

Private keys are long, complex alphanumeric strings that function like passwords, providing access to your crypto. Instead of having to remember these, you only have to remember a single list of 12, 18, or 24 words called a human-readable Secret Recovery Phrase (also known as a seed phrase). In Ledger signers, the SRP is stored within a secure element, a specialist type of microchip also used in bank cards and passports.

Your Secret Recovery Phrase is what generates your private keys, essentially serving as a master key for all the accounts you create with it. Should you lose or damage your signer, you can use your SRP to restore access to all your private keys and, by extension, all your crypto. It is absolutely critical that you:

• Write it down offline; pen and paper are the default form of backup.
• Store it in a secure, private location.
• Never share it with anyone.
• Never store it digitally, or type it on an internet-connected device

This seed phrase is the ultimate representation of your ownership. The safety of your digital assets depends entirely on the security of this phrase.

Anyone who wants to practice secure ownership of digital assets should: 

• Understand what private keys and Secret Recovery Phrases are
• Understand how to securely back up a Secret Recovery Phrase
• Have at least one backup of their Secret Recovery Phrase written on paper
• Understand the backup options for a Secret Recovery Phrase in addition to pen and paper e.g. Ledger Recover and Ledger Recovery Key

Explain Private Keys Like I’m Five – Treasure Maps

If you’re still scratching your head trying to figure out what Private Keys are, and why they’re so important, the concept isn’t that different from hiding treasure.

• Thinking of your crypto as treasure that you want to hide, so that only you can access it. 
• To hide treasure, you might dig a hole and save the location coordinates in a GPS device, kept offline when not being used, in a safe.
• Your GPS device is like a signer. Both share the location of something of value, treasure in the physical world, or digital assets located virtually, on a blockchain.
• In case you lose your GPS device, you should have an offline copy of the coordinates of your treasure. Just replace the GPS Device and you’re golden.
• Just as important. If you cannot access your wallet, you just need the backup of your SRP. No backup, and your treasure will be lost forever.

Comparison of Wallet Types

Once you grasp the main misconceptions around digital ownership and the fundamental role of private keys, the trade-offs of different types of crypto wallets – and how they handle them – should become much clearer, along with the security implications. 

This table clearly shows why signers offer the safest option for securing your digital assets.

Ledger’s Role in Your Self-Custody Journey

Ledger signers are designed to make secure digital ownership accessible and secure for everyone. They specifically mitigate the risks by:

• Keeping private keys offline: Your private keys are generated and stored in a certified Secure Element chip, a feature borrowed from passports and credit cards. It’s a tamper-proof chip that keeps your keys isolated from your computer and the internet.
• Providing a secure screen: You physically verify transaction details on the signer itself, ensuring that what you see on your computer screen hasn’t been tampered with by malware.
• Integrating with Ledger Wallet: This secure, all-in-one platform allows you to manage over 5,000 crypto assets and access dApps without ever exposing your private keys.
• PIN Code Protection: Every Ledger signer is protected by a 4 – 8 digit PIN code chosen when you initiate your signer. It’s your first line of defense, and your signer will factory reset after three incorrect attempts to ensure your assets don’t fall into the wrong hands.

By using a Ledger signer, you are not just buying a product; you are adopting a secure mindset and embracing a future where you have full control over your digital assets. 

If you understand the principles of digital ownership and follow best practices, digital freedom is yours. Ledger has sold over 8 million devices, and none have ever been hacked. However, simply owning a Ledger signer, or any hardware wallet, doesn’t mean your crypto is safe, because you are still vulnerable unless you truly understand how to secure your assets properly.

Misunderstanding of Digital Ownership Fuels Scams

A Ledger signer cannot be hacked, but you can. Scammers are skilled at exploiting those who don’t fully understand how digital ownership works. This is the unfortunate reality of the ecosystem today. Digital sovereignty is a great power, but it comes with responsibility, which in a world of 24/7 customer support comes as something of a surprise.

Your Responsibilities in Digital Ownership

Taking control means you are your own bank, and your security depends on your vigilance. With all the information you’ve now taken on board, here’s a checklist of your responsibilities:

• Safeguard Your Secret Recovery Phrase: This is your most important asset. Store it offline and in a secure location.
• Verify Transaction Details: Always double-check the address you’re sending to and the amount before confirming a transaction on your device. Never blindly approve a transaction.
• Be Aware of Scams: Phishing attacks and other scams are common. Never give out your seed phrase or private keys, and be skeptical of any unexpected requests for information.
• Understand Smart Contracts: When interacting with decentralized applications (dApps), understand what permissions you are granting. Tools like Ledger’s Clear Signing provide a readable, on-device summary of what you are signing, helping you avoid malicious interactions. Transaction Check acts like anti-virus, proactively scanning the source of transactions for threats.