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Several services offer to create a new tezos wallet/account/key (tz1...). For example, consider Galleon Wallet. By entering a password, it produces a new wallet:

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You then need to choose a set of 12 words, which are used to make a backup and to recover access to the account in case it is needed. My question is, how do I know the private information above is not being shared with anyone? I imagine this can somehow be seen in the source code of the program. But some are not open source. For instance, kukai is a web service that creates wallets. How can we know such creation of wallets is secure? Surely there must be some sort of "official" communication between these services and the blockchain. Is there some protocol that ensures such security, or is that a layer altogether detached from the interaction of these wallet creation services with the blockchain?

6

If the key is generated on their server, you have no way to know.

If the key is generated locally in your browser, you may try to monitor the network to see what the wallet sends to the server. However, it might still find other ways to get the key, for example by waiting a random time before sending it, by encrypting the communication, or just by limiting the randomness when generating the key, so that it can guess it later.

I think the only reliable way is to use an external device, such as a Ledger or Trezor, it will generate the key and key it inside the device, so that the wallet will never access the key, only use the device to sign operations.

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  • Hi there. I got my Ledger and I'm trying to create a wallet with it, but it seems all requires software to do so (e.g. see here). Maybe I'm confusing a key with a wallet. Your phrase here puzzles me: "an external device, such as a Ledger or Trezor, it will generate the key and key it inside the device, so that the wallet will never access the key, only use the device to sign operations.". How is the hardware safer if I can only create wallets via software? Don't get it. – luchonacho Mar 17 '19 at 21:31
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Any wallet software you choose to run comes with risks you should be fully aware of in order to properly protect yourself.

  1. Whether its a web, desktop, or mobile app you are running code that someone else wrote and the best way to reduce the risk is to make sure you are using software that is open source and has been verified by the community as coming from a reputable developer.

  2. Next you need to take steps to ensure that the code you are running actually comes from the developer and that you haven't mistakenly downloaded it from elsewhere. This primarily means avoiding phishing links by double checking the URLs and preferably making bookmarks to known good sites.

  3. Keeping your computer free of malware. It doesn't matter what software you are running if your system is infected.

Finally, the best way to protect yourself is to use a hardware wallet device. This way the keys never leave the hardware device, which is especially important if you aren't certain that your computer isn't infected with malware. As long as you are careful to double check all input validation at each step the hardware wallet will keep you protected.

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  • Mmm, but if you already created a wallet using software, it might be too late. In that case, would it be better to create a new one from hardware and then transfer all funds to that wallet? – luchonacho Feb 21 '19 at 10:32
  • Overall, seems to be a deep flaw of software wallets. Honestly, no one should use them, and should probably not been endorser or suggested by the official blockchain foundation. – luchonacho Feb 21 '19 at 10:33
  • Software wallets play a very important role in any crypto ecosystem, but people need to learn about the risks. If you are concerned about security and especially if you aren't confident about keeping your system safe from malware, the best recommendation is to get a hardware wallet device and transfer your important funds into it. – cousinit Feb 21 '19 at 10:35
  • Actually, Galleon does not publish the source code! – luchonacho Feb 21 '19 at 10:36
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    The most common attack are phishing links which lead people to running the wrong software. Galleon has been vetted by community as a reputable product, yet that does not guarantee you protection from phishing and backend hijacking. As I have explained you can significantly improve your protection by using a hardware device. For large value amounts it really is a must, in the crypto world users are expected to take personal responsibility. Software wallets are needed for many use cases, but they come with risks. – cousinit Feb 21 '19 at 10:43

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