How to Use a Ledger Bitcoin Hardware Wallet

This is the minimum you really need to know before using the Ledger.

You have a Ledger hardware wallet that stores your bitcoins, a pin to access it, and a 12-24 word recovery seed to recover it. In the case that you lose access to the Ledger or forget the pin, no problem, you’ve stored your recovery seed.

If we sharpen our vision just a bit we can get a higher resolution view of what’s going on inside the hardware wallet, and maybe even understand how a series of words can work as a recovery device for digital money.

Bitcoin keys are generated at random. In the image above, you see the master keypair is created from a random entropy source. To get a better understanding of what entropy means in this context, you can roll your own entropy with Bitcoin dice. Mostly, its just a really big random number, and every wallet you’ll ever interact with is going to generate that entropy for you.

  1. The entropy source is generated by the hardware.
  2. The mnemonic and the master keypair are created from the “seed entropy” or entropy source. This is the 12 to 24 word list you write down after creating the ledger.
  3. All the wallets, accounts, and addresses are created from the master keypair as needed. These addresses are what you interact with and see in the Ledger wallet app directly. The entropy seed, master keypair, and private keys take place behind the scenes.

Recovery Seed (Words) ⇄ Seed Entropy (Bits)

If equations scare you close your eyes.

$log2({2048 wordlist}^{12 words})$ = 132 bits of entropy

$log2({2048 wordlist}^{24 words})$ = 264 bits of entropy

A bitcoin can be described as information with value. The recovery seed stores the information as words, and the seed entropy stores the information as bits.

So What?

Notice that when we take a closer look at how the Ledger is storing your bitcoins, there is no one place we can point and say, “these right here are the bitcoins”.

In one sense, bitcoin is the value stored in your wallets. In another sense bitcoin is the recovery seed, neither of which you would mean anything without the hardware to import it into, or the Bitcoin network to send them over.

Bitcoin is a system, and systems can’t be deconstructed into their component parts and maintain their same properties. The system as a whole produces valueable information. The properties of the system make it so that bitcoins can be traded digitally, and be stored “physically” in as few as 12 words.

  • You can memorize the seed phrase.
  • You can store bitcoins on a cryptosteel.
  • Or work the words into a multi-million dollar letter.

Best Practices

After creating a wallet on the Ledger, test the recovery seed.

Wipe the wallet of the keys by getting the pin wrong three times, and reimport the wallet with the recovery seed.

If / Then

If you lose the pin, you can recover your entropy source and recreate your keys from the recovery seed.

If you lose your recovery seed, you have no other recourse for recreating that same master keypair. So don’t lose it.

If your recovery seed is stolen or exposed, anyone with the seed can claim control of the bitcoins without the pin. So don’t lose it. If you want you can add a password to your recovery seed so that if someone does find your mnemonic, they can’t immediately run off with your bitcoins.