Demystifying iCloud security & wallets

It is not a good idea to use iCloud to back up your crypto wallet. Right? 

Well, not exactly. For most wallets – especially ones with private keys or a seed phrase – that is indeed correct.

But that is not the case with ZenGo!

Following the recent wallet hacks on the internet (see here and here), we were asked to explain how we felt about it and thought it was a good idea to set the record straight, stop the rumors and explain in clear terms what we are doing and what we are not doing.

By the time you finish reading this, I guarantee you will think differently of wallets, clouds, and backups.

Bonus: We will give you a chance to win the easiest $100 you have ever earned to prove it!

updated: someone already stole the funds from the hardware wallet seed. ZenGo remains untouched

Cloud backups are not fit for traditional wallets

Cloud security and crypto wallets are not best friends. Non-custodial wallets are particularly complicated creatures: Each wallet contains a single secret (called the private key or seed phrase) which has to be dearly protected. You’ve surely heard the same narrative, again and again:

“Do not use a software wallet with a cloud backup system.”

“You need to have a hardware wallet to be secure.”

This is the narrative the world has adopted and that is repeated by most wallet operators, followed and amplified by the media who usually stop at the surface.

But that is far from true: The weakness is not the wallet system itself, but rather the cryptography primitives and actual authentication mechanics embraced by the wallet provider.

This is where ZenGo is different: ZenGo was the first crypto wallet to use cloud backup to create a simple and secure way to restore your account. Since then, we have seen a number of wallets following our path. However, they all have one critical difference, which draws the line between what is safe and what is not: Unlike all other crypto wallets, ZenGo does not generate or backup a private key! Instead, this backup is only 1 of 3 factors we use to authenticate you with certainty – we like to call it 3-Factor Authentication (3FA) 😎

Let’s zoom in.

The core problem: A single secret key is a massive vulnerability

Let’s start with one thing: Metamask is right when they say it is a bad idea to use wallets like Metamask with iCloud backup. You should never backup a private key-based wallet like Metamask on iCloud or any cloud and even on any software. This is also true for hardware wallets.

The reason is simple: Private key-based wallets depend on only one “secret” to access your wallet and your funds. The moment someone finds that secret it is pretty much game over (proof below). Even if your wallet is password protected, pin protected, or hardware protected.

If that secret key is backed up in the cloud (or any solution that has weak security) then you have a problem. Let me ask you a question: Do you feel particularly safe after having written your 24 word seed phrase back up on a piece of paper? I doubt it. Where you are going to store it is the critical security decision.

So if someone finds your private key in iCloud or any cloud, even if your wallet is a cold wallet, your funds will be gone. 

And it does not have to be someone else. If you, by mistake delete your own only backup then you put yourself in deep trouble. 

MPC wallets (like ZenGo) and Multi-signature wallets do not have that structural problem: they do not rely on this critical single secret that is enough to access and spend your funds.

ZenGo never generates a single private key but multiple independent secret shares that never meet each other (our open-source cryptography is available for review) and therefore does not have a single secret that can compromise your funds.

The real vulnerability: Single-factor authentication, not cloud storage

Metamask, unlike many other wallets, does not provide an option to backup your private key in the cloud (for example below Coinbase wallet does).

However, iCloud has a default option that will backup all apps and their content in the cloud to facilitate the recovery with a new phone. The only protection you have left is the password protection used to access the app. This has nothing to do with the private key and the way the wallet protects it.

So whether a private key wallet offers a native option to backup the seed phrase or not, your wallet is only one password away from being taken over in a new device.

In the case of Metamask, if your iPhone is backed up on iCloud, when you restore your phone to a new device (as it happened in this hack) you will not need the seed to access your account but only the authentication password set by the user.

These authentication mechanics are based on a single factor. If your password is weak (or can be socially engineered) then it will be trivial to access your wallet, even without knowing the private key. The same would be true if someone accessed your hardware wallet and could easily guess the protected PIN.

This is a security design flaw of most wallets, including with social login wallets based on your email or social media account. Single-factor authentication is never a good idea and this is why most exchanges and banks ask you to set up a second-factor authentication system.

Why don’t wallets implement two-factor authentication? The short answer is because they can’t or won’t. But this is for another post. It is more interesting to look at how we have solved this at ZenGo.