How to Create a Cryptocurrency Hardware Wallet like Ledger?

In 2020 the global market of hardware cryptocurrency wallets reached 200 million dollars. Expectedly, it will grow to 877 million by 2026. Furthermore, the average annual growth rate will approximately be 30%. Hence, this sector is one of the best to launch new projects in. This article will tell you how to develop your wallet for cryptocurrencies like Ledger, Trezor, Cobo Vault, or CoolWallet.

What are hardware wallets?

Hardware wallets are cryptocurrency wallets that store the private keys (a crucial piece of information employed to authorize the blockchain’s transactions like Bitcoin and Ethereum. The keys are stored on a secure physical device, namely Hardware Security Modules. The primary purpose of the hardware wallets is to provide a discrete, isolated place between the private keys and the computer of the users’ smartphone that are easy to hack.

Most hardware wallets for cryptocurrencies are compact physical devices reminiscent of a USB drive, car keychain, or bank card. Inside that device (let’s look at Ledger Nano S), there is typically a circuit board, microcontroller (STM32F042K), and a security module (ST31H320), where the private keys are. Some wallets have a battery, Bluetooth, Wi-Fi, or NFC modules. 

If you use a hardware wallet to store your cryptocurrency token, you can ensure that your assets are safe (yet no wallet will guarantee you 100% protection). Moreover, you can control your balance and receive and send tokens, regardless of location and time. All you need is to have the wallet with you and access to the internet.

Critical advantages of hardware wallets for cryptocurrencies:

• Protection. Private keys for cryptocurrencies are stored on a unique hardware security module that is isolated from the network.
• Reliability. Hardware wallets provide access to the assets only through multi-level authorizations.
• Backup. The user has secret seed phrases that help to renew access to the wallet if it is necessary.
• Ease of use. Any user that has basic knowledge of cryptocurrencies and IT can easily and quickly set a wallet.

Hardware wallet working principles

From the technical aspect, all hardware wallets are hardware security modules designed for the cryptocurrency market. In other words, this is a device that functions as secured storage from unauthorized access. You can create a cryptograph user identification within the wallet (in our case, it is an account in the cryptocurrency network). The identification is isolated from the operating system of the smartphone. The hardware wallet only approves the transaction created on the computer, signs it, validates, and publishes it on the blockchain.

To understand the working principle of such a device, think of the hardware wallets as external physical devices where you input your unique PIN code that proves that you are the initiator of the transaction. So to say, if you need to perform a transaction, you take the hardware wallet, enter the PIN code, and process the transaction.

In cryptography, the PIN code is called a private key. All hardware wallets protect the private key storing it on special microprocessors. The microprocessor used for storing the private key can be divided into two categories:

• Regular — used for microwave ovens, cameras, phones;
• Secure — used for maps, POS devices, passports.

These ‘secure’ microprocessors are called SE, which stands for Secure Elements (for example, Ledger Nano S wallet uses the Secure Element ST31H320). Microprocessors employed for hardware wallets are much more complicated than the regular ones since they use ciphered memory and exceptional physical support to prevent the attack and unauthorized access to the private keys within the wallet, consequently to the users’ tokens.

Furthermore, microprocessors for hardware crypto wallets have an operating system to manage the processing environment, adding another security level for further ciphering. Some companies integrate their operating system if it has an enhanced security level. Ledger is one of the examples.

 Three components of a hardware wallet

Developing a hardware wallet like Ledger is quite a complicated process that requires a multifunctional cryptocurrency platform that will have the following modules.

User interface

It is the frontend part of the hardware crypto wallet that responds to interaction with end-users. They will use it to authorize and set the wallet, buy, accept, and send cryptocurrency assets to other users. The front end of the Ledger wallets has a mobile, desktop, and web interface; you launch your wallet and develop these interfaces and applications.

Hardware security module (HSM)

As mentioned above, HSM is a physical super secure device that protects unauthorized access where the authentication information is stored (for example, the private keys). HSMs can be connected to your computer or smartphone via USB or wireless protocols like Bluetooth or Wi-Fi. Most HSM can do the completed ciphering using the private keys. Hence the private keys never leave the HSM.

To develop your hardware wallet, you will need to have an HSM. It can be created from scratch, or you might order a template option as a USB drive from the suppliers. For example, Utimaco, Gemalto, Microsoft, Amazon, Thales, and IBM offer cloud HSMs perfect for hardware wallet development like Ledger Nano S.

Also, you will need to understand that you need an HSM that is compatible with the international standards, like Common Criteria or FIPS 140. This certificate proves that HSM passed the security tests done by qualified professionals. Hence, it is secure and reliable. Furthermore, as your hardware wallet will be used for financial payments, it would be good if HSM will meet the HSM requirements defined by the Payment Card Industry Security Standards Council.

The server part of the product

When developing the project’s architecture, this part should be given maximum attention because Backend processes store, protect data for the smooth operation of the wallet. It is the ‘heart’ of your system. Developing the server part on local private servers makes it possible, but Microsoft, Google, and Amazon cloud solutions are much better, straightforward, fast, and cheaper.

Main and additional platform functions

Authorization. For hardware, the crypto wallets registration process means creating an account and connecting it to the existing cryptocurrency accounts. It also means the initial setting of the wallet: installation, connecting it to the computer, creating a PIN code, recording the seed phrase, etc. Next, the authorization will go according to a simple scenario (connecting the wallet + entering a PIN code).

Enhanced security. The next thing you will need to focus on to develop your cryptocurrency wallet like Ledger is the users’ data and financial protection. It is crucial for networks like Bitcoin or Ethereum where it is impossible to cancel a wrong or an unauthorized transaction. Hence, the users will doubtfully have an opportunity to receive their money back if it was stolen or sent to the wrong address.

Here are a few pieces of advice that will help you protect your clients’ money.

• PIN code. The users will enter it each time they sign in to approve a payment or introduce changes to a hardware wallet.
• Two-step authentication. It is an additional level of confirmation via email, SMS, Google Authenticator, or its analogs.
• Seed phrase, or mnemonic code. It is a phrase of 12 or 24 words that are randomly generated during the registration. It will help to renew access to the account if it was stolen or if the passwords and keys were lost.
• Automatic logout. The implementation of a lifetime management function to track user activity and automatic logout of the account when the wallet is idle for 5 or 10 minutes. It is also possible to implement automatic logout if the user performs atypical actions and fails to confirm the transaction with a unique payment password (if available).
• Checking the IP during important actions. This mechanism of wallet protection records the IP the user uses to log in to the wallet. Furthermore, it compares current IP with those in the list of allowed ones. If someone logs in from an alien IP, the user will not log in until they add the new IP to the list.
• Multisignature. This function enhances the security level of your service. It allows several users to sign one address by a public key. If someone wants to spend the tokes from the wallet, they will need two or more signatures to make the payment.

Exchange rate, conversion coefficient. As the users of your hardware wallet will buy and sell Bitcoin, Ethereum, and another token, they will need to know the exchange rate. Furthermore, they will need to see the conversion coefficient, including the fees and other service expenses.

Managing the crypto assets (balance). This is a core function of any crypto wallet since it helps to buy and sell tokens. Here is the list of the essential things:

• Viewing the balance, transaction history, contra gents list.
• Buying and selling crypto assets according to the current market rate by using PayPal, bank cards, and other payment instruments.
• Sending and receiving money.

Administration panel. Here, your employees will trace the system’s condition, manage the users, connect, disconnect the payment nodes, manage the monetization, solve the issues, etc.

Additional functions. If you want your crypto wallet to be popular, you need to make it stand out from the competitors. You can do it by adding additional functions, for example:

• Lightning transaction. Fast and cheap payments;
• Several interface languages. It will boost the audience coverage;
• E-commerce website integrations. Purchasing goods and services for tokens;
• QR codes for fast transactions. It enhances the user experience;
• Favorite cryptocurrency addresses. It makes repeated transactions faster;
• NFC support is one of the main trends in the cryptocurrency world;
• It will share important information with the clients.

The architecture and the technology stack of a cryptocurrency wallet

Architecture. You can see a system architecture of a hardware wallet for cryptocurrencies below. It focuses on the maximum security level for the money and user’s data.

Technology stack:

• Blockchain: Ethereum, Binance Smart Chain.
• Token standard: ERC721, ERC1155, BEP-721, BEP-1155.
• Smart contracts: Ethereum Virtual Machine, BSC Virtual Machine.
• Programming languages: PHP, JAVA, MEAN Stack, Laravel.
• Website development: PHP-Laravel / Codeigniter.
• MEAN: MongoDB, Express JS, Angular js, Node js.
• Android: Java, Kotlin, Node JS, ROR, Laravel.
• IOS: Swift, Node JS, ROR, Laravel, ткань IOS.
• Cloud: AWS, Google Cloud Platform, MS Azure.
• Push-notifications: Twilio, Amazon SNS, MAP.
• Database: MySQL, MongoDB, Redis.
• Other: RSpec, Phantom JS, PUMA server.

Cryptocurrency wallet development process

Creating the software for a hardware wallet like Ledger can be done only by custom development. Since only this way can one reach the required level of security and reliability of the system. It is crucial to develop software with open source code (a cryptocurrency market standard). If the code has security gaps, then any hacker will get access to your wallet.

We have discussed everything you need to know on finding a technological partner to develop this software in the article: ‘How to choose a company for blockchain development.’ You can use this instruction to find the best developer, or you may directly contact Merehead. Our company has developed blockchain, fintech, and DeFi solutions of any difficulty since 2015. You can study our portfolio and find out the terms of cooperation via sales@merehead.com, by this phone number +1-206-785-16-88, or by the feedback form.

When you have chosen your technical partner, the development process of a hardware wallet like Ledger will go the following way:

1. Business and technical analysis. Before launching any IT product, you need to analyze the business and technical aspects of the project to understand the business goals and define the technical requirements.
2. Prototyping and architecture design. After a thorough analysis of the business aims and creating the technical assignment, the wallet architecture is developed. It will show the correlation between different parts of the wallet’s system. The client must approve the architecture, and if everything is alright, it will function as a plan for further development steps of the product.
3. Interface design development. Interface design will show how the users will see the hardware wallet and the way they will interact with it. A low-fidelity prototype is first created to outline a rough UI/UX scheme and show it to the client when developing a design. If the client approves the scheme, a high-fidelity prototype is created, which is as close as possible to the final appearance of the wallet.
4. Smart contracts development. To develop a hardware wallet for cryptocurrencies like Ledger, you will need to implement the wallet’s server and front-end part and create several smart contracts. It will help manage the cryptocurrencies assets: buying, selling, accepting, transferring the tokens, account backup, etc.
5. Server part development. If necessary, the server services will be developed. They are required so that the interface interacts with the blockchain. Also, it completes any smart contracts and integrations with other benefits.
6. Frontend development. Before deploying the project, the user interface for the hardware wallet is developed. As a result, the final version of the wallet is ready. Next, the application is tested for bugs and issues, whether it meets the technical specifications, etc.
7. Deployment. When the software is created and thoroughly tested, the wallet system is deployed and made available to users. If the wallet has a mobile app, it is added to the tables.

The expanses on hardware wallet development