Comment by dfox
16 days ago
The root cause of this attack is that the typical cryptocurrency wallet operational model involves the key leaving the device in plain text as part of the setup/backup process. Such a thing is impossible on any normal correctly configured HSM (while creating backups is possible by some sort of multi-step process where the secret key material never exists in plaintext outside the security boundary, how exactly that is done differs significantly between vendors).
Ledger devices generate a private key internally, and it never leaves the device's secure element chip. The malicious chip in this attack reads the display to get the 24 word recovery phrase shown during setup.
These Ledger hardware wallets are following the best security practices for hardware wallets and still got hacked.