Celebrating 10 years of hardware wallet revolution

As we celebrate the 10th anniversary of the first hardware wallet, it’s remarkable to see how far Bitcoin security has come. From the early days of precarious self-custody methods to the game-changing creation of the Trezor Model One, this revolution has transformed the way we protect our digital assets. With a decade of this experience behind us, it’s worth revisiting the challenges of early Bitcoin self-custodial, the pivotal impact of the first hardware wallet, the pivotal role of self-custodial in today’s Bitcoin landscape, and the groundbreaking advances that continue to shape the future of crypto security.

The origin story

It all started in 2011 when Marek “Slush” Palatinus logged into his mining server and discovered that 3,000 BTC were missing. A mining pool is a collective of miners who combine their computing resources to increase their chances of successfully mining Bitcoin blocks. Slushpool, now known as Brains Pool, was the pioneering mining pool in the Bitcoin community, established in 2010.

This incident highlighted a significant problem: even Bitcoin tech enthusiasts can fall victim to online attacks. At the time, securing and managing Bitcoin was a daunting task that involved storing private keys on a computer. However, securing information on a computer is difficult; these complex machines are vulnerable to many threats that allow thieves to steal private keys that control Bitcoin. The hack that cost Palatinus 3,000 BTC was a reminder of these early vulnerabilities.

Recognizing the pressing need for a simple, stand-alone device that could securely store Bitcoin, Slush, along with Pavol “Stick” Rusnák, set out to create the world’s first hardware wallet. Their vision was to develop an offline computer specifically designed to store Bitcoin securely and make it accessible to non-technical users. The concept was simple but revolutionary: a small, single-purpose device that would store private keys in an isolated environment, protected from online threats.

Before hardware wallets

Before hardware wallets became widely available, users had to rely on software wallets installed on computers or smartphones, which exposed them to a number of security threats. Malware infections and other attacks were common. Paper wallets were considered more secure, but still required a computer to create the wallet. More secure methods, such as using airlocked computers for cold storage, required significant technical expertise, and even these methods lacked an adequate level of security for larger amounts of Bitcoin.

The usability of early Bitcoin wallets was also a significant problem, with clunky interfaces and complicated backup processes. Many users failed to properly backup their wallet, resulting in permanent loss of funds if a device was lost or damaged. Users were often unaware of backup best practices, and the lack of standardized backup methods further increased the risk. A major improvement in backup standardization came with the introduction of Hierarchical Deterministic (HD) wallets with BIP32 in 2012, enabling easier and more reliable backups. Despite these advances, there was still a lack of lightweight and easy-to-use options for newcomers. In short, the era before hardware wallets was marked by significant security and usability challenges, making Bitcoin self-custody a complex and risky endeavor.

The first hardware wallet

In the years leading up to 2014, various attempts were made to develop simple, single-purpose devices for storing cryptocurrencies. However, these efforts have failed to gain traction or meet the required security standards. Recognizing the need for a robust solution, Slush and Stick monitored the landscape for two years before finally deciding to create their own hardware wallet.

In 2014, they released the Trezor Model One. This device was the first hardware wallet, combining user-friendly design, truly random private key generation and the ability to easily sign transactions completely offline. In addition, it implemented the BIP39 standard, a new standard created by the creators of Trezor to back up wallets using a list of 24 words representing private keys, a standard adopted by many wallets and familiar to anyone who has put their Bitcoin- the in itself. custody.

When the user connects the device for the first time, it guides them through the setup process to create a new wallet. The device generates a recovery seed, which is a human-readable version of the wallet’s master private key, and allows recovery of the wallet in the event of a device failure. The user is asked to write down this list of words on a piece of paper, ensuring that the wallet is backed up and the private keys remain offline.

This integration process ensures that users create a backup copy and keep it safe. The user-friendly design provides advanced security, making hardware wallets accessible to both beginners and experienced users.

The advantage of Open Source

A key aspect of Bitcoin is its commitment to open-source principles, and that’s why Trezor’s founders adhered to the same principles when developing Trezor Model One. This approach has been adopted by most manufacturers in the industry. Open-source software allows the community to audit and verify the integrity of a system. This transparency ensures that potential vulnerabilities can be identified and addressed promptly and enables improvement by the global community. The first hardware wallet was open source, and many in the industry embraced this approach for transparency, underscoring Bitcoin’s ethos, “Don’t trust; check”.

The importance of self-care

Over the lifetime of Bitcoin, we have seen many crypto exchanges and custodians collapse or suffer serious security breaches, showing the importance of owning your private keys. The mantra “not your keys, not your coins” emphasizes that relying on third-party institutions means trusting someone else with your assets, which can lead to big problems if the exchange is hacked, mismanaged, or faces legal trouble.

The incident of Mt. Gox in 2014, one of the earliest and most notable exchange crashes, saw the loss of 850,000 bitcoins, valued at hundreds of millions of dollars at the time. This catastrophic failure was due to both hacking and mismanagement, leaving users unable to recover their funds. Bitfinex also suffered a significant hack in 2016, resulting in the theft of nearly 120,000 Bitcoins. QuadrigaCX in 2019 saw users lose access to their funds after the sudden death of its founder, who was the only one with the keys to the exchange’s wallets. Cryptopia faced a debilitating hack in 2019, and Binance, the largest cryptocurrency exchange by volume, has also suffered breaches and is facing increasing regulatory scrutiny. More recently, the 2022 FTX crash further reinforced the dangers of entrusting assets to centralized entities. Overall, mismanagement and fraudulent activities have resulted in the loss of billions, impacting countless users and shaking confidence in centralized exchanges.

Using hardware wallets, individuals can achieve true financial independence by keeping their digital assets safe from the vulnerabilities of trusted custodians.

The evolving landscape of hardware wallets

Over the past decade, the hardware wallet industry has expanded greatly, with many companies offering a variety of products and features to meet different needs. User interfaces now range from simple button-based navigation to touchscreens and full keyboards. Many devices now support multiple cryptocurrencies, while some focus exclusively on Bitcoin. This range of devices caters to both beginners and advanced users, ensuring that everyone can find a suitable option.

Another advance was the inclusion of secure elements – specialized chips designed to protect devices from physical attacks. However, all secure elements currently available in the market are closed source, which raises transparency issues. To solve this problem, companies like Tropic Square are actively working to develop open-source security elements to increase trust and security.

Other significant industry advancements aim to increase the security and robustness of wallet backups. Techniques such as Shamir’s Secret Sharing, Multisignature Wallets, and SeedXOR allow users to eliminate single points of failure, making it significantly more difficult for thieves to compromise the wallet.

Looking ahead, we can expect more improvements in hardware wallet security and usability. A notable development is the wider implementation of a new and improved standard, SLIP39, which uses Shamir’s Secret Sharing. This method is becoming preferred over the traditional BIP39 standard due to its increased security and ease of use. With SLIP39, users start with a single wordlist to back up their wallet and can later upgrade to a “sharded” backup with multiple shares. This approach provides a flexible and highly secure solution, making advanced security measures more accessible and practical for a wider range of users.

We look forward to the next decade

As we celebrate the first hardware wallet, it is clear that this revolution has fundamentally transformed cryptocurrency security. From humble beginnings as a hobby project to becoming a trusted name in the industry, Trezor has pioneered innovations that have empowered countless people to take control of their financial future. The journey from the first prototypes to the sophisticated devices we use today is a testament to the vision and dedication of the Trezor team.

With the continued evolution of Hardware Wallet functionality and commitment to security and transparency, the future looks promising. As we look forward to the next decade, the industry remains committed to securing and innovating the security and use of Bitcoin, ensuring that self-custody becomes increasingly accessible and secure for all.

This is a guest post by Josef Tetek. The opinions expressed are entirely our own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.