Evaluating the Usefulness of Hardware Wallets: Part 3


6 min read
Evaluating the Usefulness of Hardware Wallets: Part 3

With Increased Complexity Comes Increased Burden

Sometimes we tend to only look at the benefit of security solutions without considering the burden associated with their implementation.

If you were reading what was written above very carefully, then you probably noticed that this idea of possessing the adequate resources to hire a cyber security firm (not an individual), on retainer, specifically for the management of your organization's assets and "secrets".

Hardware-based Cryptographic Solutions (hardware wallets / HSMs / etc.) Are Not Cheap

While the actual hardware itself is probably affordable for many, leveraging said devices in a meaningful way that actually enhances the security of whatever you're doing is difficult.

Make No Mistake - HSM Hardware Can Also Be Really Expensive Too

Below is a screenshot of a Juniper Networks' HSM module listing:

(source: https://www.cdw.com/product/Juniper-Networks-Secure-Access-6500-FIPS-Base-System-security-appliance/1760356?cm_cat=google&cm_ite=1760356&cm_pla=NA-NA-Juniper_NY&cm_ven=acquirgy&ef_id={gclid}:G:s&s_kwcid=AL!4223!3!323019573549!!!g!379312907725!)

A Genuine HSM Solution is Probably Not Afforable in Any Pratical Sense for the 'Average' Blockchain Holder

Please do not take offense to this headline because it isn't meant to suggest that anyone reading this that falls under the category of "aveage blockchain holder" is simply too poor / unsophisticated to access this type of device.

Rather, this headline is stating that the associated costs with obtaining such a device (relative to the perceived benefits it may bring users) - makes it not worthwhile or practical to purchase.

But wait! I saw a hardware wallet being offered on Amazon for only $100!

There's no doubt on our end here - but that's more than likely because that hardware wallet in question is overstating its efficacy / security enhancements as a blockchain wallet storage solution.

Evaluating True Costs of HSM Solutions On the Market

One section of the 'opendnssec' website (ran by NLNets), carves out the expected costs of HSM module standards, as well as the accompanying benefits that purchasers should expect with each "tier".

You can find that comparative list here: https://wiki.opendnssec.org/display/DOCREF/HSM+Buyers'+Guide#HSMBuyers'Guide-2.Low-costsmallform-factor(smartcardsandUSBtokens)

For convenience sake, we will also provide screenshots of the most relevant parts of that list below (because it is critical that readers see this):

HSM Type 1: Software Tokens

HSM Type 2: Smart Cards and USB Tokens (What Hardware Wallet Retailers Are Most Likely Selling You)

Since Bitcoin leverages ECDSA keys versus RSA keys, the storage space (key-wise) is probably much greater than the suggested limit for RSA keys (40 per the screenshot above).

No Symmetric Key Algorithms

This means that there are no cryptographic primitives that come pre-packaged with legitimate second-tier HSM devices that allow for the encryption / decryption of the data on the device itself via any means outside of PKI (public key infrastructure; i.e., private / public key pairings).

This is a puts those solutions at a steep disadvantage because they must compensate their cryptographic encryption mechanisms with some form of key management itself (despite the fact that the hardware module / HSM in this instance is used to ensure the management and maintenance of the keys in question).

Symmetric Encryption is Preferable For Data at Rest

Below is a diagram of symmetric encryption that should make it visually obvious why data at rest benefits tremendously when encrypted using symmetric key algorithms:

But wait - before we go forward here and explain why that is - let's just make sure that everyone is up to speed so far.

'What are symmetric key algorithms?'

Lazy Explanation: All key-based cryptographic primitives that do not rely on PKI.

Real Explanation (via https://www.cryptomathic.com/news-events/blog/symmetric-key-encryption-why-where-and-how-its-used-in-banking)

"Symmetric encryption is a type of encryption where only one key (a secret key) is used to both encrypt and decrypt electronic information. The entities communicating via symmetric encryption must exchange the key so that it can be used in the decryption process. This encryption method differs from asymmetric encryption where a pair of keys, one public and one private, is used to encrypt and decrypt messages."

Examples (Popular Cryptographic Primitives Used For This Purpose):

Most Commonly Used Form of Symmetric Encryption Today: AES (most common one in use; yes, your hardware wallet may require that you take the 'L' of not being able to perform this cryptographic operation on it in order to encrypt your keys at rest).

Symmetric Encryption Algorithm Example #2: Twofish

(A notable contender that finished 3rd in the NIST sponsored competition to find a new standard to use for 'AES' encryption [currently the standard = Rindjael]).

Symmetric Encryption Algorithm Example Number Three: Serpent

(Another major contender to be used the 'AES' standard in the NIST competiton;  ended up as 'runner-up' to Rindjael - reference = https://www.cl.cam.ac.uk/~rja14/serpent.html); finished second behind AES with 59 votes to Rindjael's 86.

Final Symmetric Encryption Example: Salsa 20

See below:

(salsa20 is one of the preferred means of authenticated symmetric key algorithm deployments whenever it needs / can make the decision to choose its deployment in situations that mandate that streams of information be encrypted in a way that authenticates the data received while also providing the benefits of authenticated encryption)

All of these benefits are not afforded with genuine tier-2 HSM modules (thus, if a hardware wallet provider is making such promises with their device, then you should scrutinize those claims and any accompanying documentation that they may provide to attest to said claims).

HSM Type 3: Cryptographic Acclerators

At this point, the module that you are purchasing is more than likely no longer portable (as the former ones were that we discussed).

HSM Type 4: Medium to High Cost Traditional Hardware Accelerators

Note the cost of the latter two types of HSM modules were in excess of several thousand dollars and they are also not portable devices.

These services are not cheap - but that's also due to the fact that they are not easy.

Finding individuals / entities with this level of expertise is substantially harder than finding a reliable wallet solution (which Librehash is working on).

And the dangers of using an ambitiously marked security product (i.e., a 'hardware wallet') that fails to live up to its claims can be complete loss of funds - which essentially undermines your entire reason for seeking out a hardware wallet in the first place.

Conclusion

While hardware wallets are not hype (as there are plenty of hardware based solutions for protecting sensitive data like a Yubikey) - these solutions need to be seen in their proper context and frame.

They are convenient if you are perhaps:

Lazy and looking for a more accessible way to access your keys

Are a nerd or a thriving cryptocurrency businessman that deals with a lot of transactions whilst still generating revenue below $1-10 million/year

Like the novelty of the device

However, if you are simply looking to secure your funds and that is all - the best course of action would be to ensure that you are following any and all standards for safe key management (which we'll be publishing in due time) as well as vetting the sources that you use for various facets of your blockchian activities.

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