## Introduction
Every blockchain user faces the same paradox: the technology is trustless, but we still have to trust ourselves not to lose our keys.

Blockchain systems rely on **public-private key cryptography**, a mathematical way to prove ownership of assets without intermediaries. The private key is what authorizes transactions. Whoever holds it, controls the funds. That makes keeping it safe absolutely critical.

But private keys are long, complex hexadecimal strings, difficult to read, prone to input errors, and unsafe to transmit across devices or networks. To address this, **[Bitcoin Improvement Proposal 39 (BIP-39)](https://trezor.io/learn/advanced/standards-proposals/what-is-bip39)** introduced a more human-friendly solution: **seed phrases**.

A seed phrase encodes a private key as a sequence of 12 or 24 common words, allowing users to back up and restore their wallets more easily. While more readable, seed phrases still place the full burden of information storing on the user; they must be written down, stored securely, and never shared.

Today, new approaches to key management are emerging:
- hardware-based systems like **Tangem**,
- distributed cryptography networks like **Lit Protocol**
- smart contract wallets like **Safe**.

In this article, we’ll look at how these models work, what trade-offs they introduce, and what secure self-custody might look like in the next generation of wallets.

## Hardware-Based - Physical Custody of Keys
Early solutions to improve key management focused on keeping private keys offline, a principle known as **cold storage**.

Devices like **Ledger** and **Trezor** pioneered the idea of hardware wallets: small, isolated computers that sign transactions without ever exposing the private key to an internet-connected device. These tools became the standard for long-term holders who prioritized security over convenience.

The next evolution in this category is **Tangem**, which takes hardware security one step further by removing seed phrases altogether. Tangem replaces the concept of mnemonic recovery with **secure NFC cards**, where the private key is generated and stored **inside a tamper-resistant chip** (EAL6+ certified). The key never leaves the card, and even Tangem itself cannot extract it.

Users typically receive **three cards**, any **two of which can restore** the wallet if one is lost. To use the wallet, simply tap a card to your phone to authorize a transaction through the Tangem mobile app.

**Key benefits:**
- 🔒 Keys never leave the card
- 🧠 No seed phrases to remember
- 🔁 2 of 3 card recovery protects against loss or damage.

**Trade-offs:**
- ⚙️ Relying on Tangem’s hardware and manufacturing security

## Distributed Key Generation - Splitting Trust Across the Network
While hardware wallets secure private keys in a single trusted device, **Lit Protocol** takes a completely different approach: it **distributes trust**.

Lit uses **threshold cryptography**, a method where a private key is **never created or stored in one place**. Instead, it’s split into multiple cryptographic shares, each held by an independent node in the Lit network. When an authorized action is requested, such as signing a transaction or decrypting data, a predefined threshold (for example ⅔) of the nodes collaborate to reconstruct a valid signature **without ever revealing the full private key**.

The generated PKP (Programmable Key Pair) is a distributed, policy-controlled key that can be linked to different authentication methods like passkeys, emails, or existing crypto wallets.

**Benefits:**
- 🔐 Eliminates single points of failure (no device or node holds the full key).
- 🔁 Enables key recovery through social or app-based methods
- 👤 User authenticates with familiar methods (email, existing wallet, etc.)

**Trade-offs:**
- ⚙️ Relies on the availability and integrity of the Lit node network

This approach also improves user experience, since users won't have to sign each transaction when using blockchain apps. We'll touch more on UX in the next article.

## Smart Contract Wallets - Programmable Security
Smart contract wallets shift the logic of key management **on-chain**. Instead of one key controlling an address, access rules are programmable. This enables creation of multisig wallets which distribute key management across many smart account owners.

Projects like **Safe** and **Argent** have pioneered this model, and the introduction of **ERC-4337 (Account Abstraction)** has made it possible for any user to deploy and interact with smart wallets without relying on centralized relayers. You can read more on this in the previous article: https://hackmd.io/@AHadzibabic/rkdz5jr61g.

**Benefits:**
- 🔐 Eliminates single point of failure
- 👤 Use different authentication methods (passkeys or email)
- 🧩 Programmable recovery and permissions

**Trade-offs:**
- 🧱 Depends on on-chain infrastructure (bundlers, paymasters, etc.)
- 🧰 Developers must manage wallet logic and ensure recovery contracts are secure.

## Conslusion
Each of these approaches, from hardware wallets to distributed key networks and smart contract accounts, explores a different way to make key management safer and easier.

Seed phrases may still have their place, but they’re no longer the only option. As the ecosystem matures, new models are challenging what self-custody can look like, balancing **security**, **usability**, and **decentralization** in new ways.

In the next article, we’ll look at how these innovations shape **user experience** and what it takes to make interacting with blockchain wallets feel truly seamless.


## Reference
- https://trezor.io/learn/advanced/standards-proposals/what-is-bip39
- https://tangem.com/en/blog/post/hardware-wallets-explained/
- https://developer.litprotocol.com/
- https://hackmd.io/@AHadzibabic/rkdz5jr61g