Crypto Self-Custody Wallets Leave Users With Security Trade-Offs

Security incidents involving Ledger and Coldcard have renewed questions about crypto self-custody for beginners, as multisignature and seedless wallets shift risks among keys, devices and transaction approvals.

The incidents included implants in some Ledger devices that captured recovery phrases and a Coldcard firmware flaw that let attackers reproduce private keys and steal funds. Hardware wallets keep private keys offline, a feature that has made them a widely recommended way to hold crypto. The incidents highlight that offline key storage does not remove every security risk.

A multisignature wallet requires multiple keys to approve a transaction. That approach can add security, but users also have to coordinate signers, manage backups and recovery, and review approvals. A compromised interface could deceive every signer into approving a malicious transaction, Safe Labs CEO Rahul Rumalla said. Adding signers therefore does not by itself ensure that a transaction is safe.

Tangem’s seedless design removes the need to manage a recovery phrase. Instead, its private key is created on one card, with backup copies on up to two additional devices. Losing all the devices would permanently cut off access to the funds. Users still have to safeguard the physical devices that provide access.

Foundation CEO Zach Herbert criticized Tangem’s lack of a built-in screen, which leaves users checking transaction details on a smartphone. Herbert warned that an attacker could empty a wallet by tricking its owner into approving a transaction, even without taking the private key. The concern is separate from key theft: users also have to judge whether the transaction they are approving is legitimate.

Michael Tanguma, CEO of Bitcoin (BTC) custody provider Onramp, compared Bitcoin custody with early personal computers, which required technical skill to assemble and operate. “Self-custody was never designed with newcomers in mind,” he said. Tanguma said simpler computer designs later helped more people use them.

Rumalla disagreed, saying self-custody was “always meant for everyone.” He said self-custody does not mean doing everything yourself. The debate reflects different views on who should handle the work of securing crypto, while the wallet designs leave users with distinct responsibilities: coordinating keys and approvals, protecting devices, or checking transaction details.