Crypto Asset Security Hinges on Compliance with Open Hardware Wallet Standards

A hardware wallet's manufacturer can be a significant risk factor for users who hold crypto assets in self-custody. The company could make mistakes, lose customer data, discontinue a model, or cease to exist altogether. This raises an uncomfortable question: does your access to funds depend on the vendor?

The answer lies not in marketing claims but in three technical specifications that have been publicly available for over ten years: BIP39, BIP32, and BIP44. Understanding what these standards guarantee and their limitations is crucial. If a device deviates from the open standards, it can lead to vendor lock-in.

BIP39 describes how a random seed value is translated into a memorable sequence of words. The specification stipulates that the initial entropy must be between 128 and 256 bits, with a checksum formed by appending the first ENT/32 bits of its SHA256 hash. This produces familiar lengths: 12 to 24 words.

The actual seed value is computed from the word sequence using the PBKDF2 function, which is fully deterministic and contains no identifier of the device, firmware, or vendor. Enter the same words into a different device that implements the same standard, and you get the same 512-bit value, this is the guarantee at issue here.

However, the checksum catches typing errors but offers no correction facility, which can result in an empty wallet if not corrected properly. Furthermore, the word list used for calculation can be different depending on the language, and the passphrase is a separate component that can lead to recovery issues if not handled correctly.