Wallet Infrastructure & Security Considerations
Wallet Infrastructure & Security Considerations
According to a study by Deloitte, a rising number of companies use digital assets for environment, operational, and transactional purposes.
Businesses using cryptocurrency undoubtedly presents a host of opportunities, but it also carries a unique set of challenges. One of those challenges is keeping up to date with the latest technology.
Within the cryptocurrency market and regulations, one thing is certain — near-constant change. This ongoing evolution can lead to a fear of obsolescence. This in turn can lead to uncertainty around cryptocurrency wallets and custody infrastructure.
As digital assets markets grow to include new players such as established banks and payment institutions, the importance of security, scalability, and performance of the underlying custody infrastructure will become even more significant.
Wallet Infrastructure for Institutions
Self-custody has always been a cornerstone of cryptocurrency. The concept is simple: hold your own keys so that you, and only you, can securely store and transfer your digital assets.
While many institutions prefer the convenience of using a trusted custodian to manage their keys and digital assets on their behalf, others will prefer to hold their own keys and execute their own transactions through self-custody.
However, that simple concept becomes more complex for institutional digital asset holders. Institutions often hold digital assets valued in millions or billions of dollars. Because of this, they require self-custody solutions with highly advanced levels of security. Institutions, in contrast to individuals, also require self-custody wallets that provide robust governance and policy controls.
Wallet Security Considerations
At the center of all wallets is a private key. The private key creates a verifiable digital signature. This signature tells the blockchain to release digital assets on-demand from the wallet by the owner. Keeping the private key secret is crucial. Anyone with the private key can sign off and move digital assets from that wallet to another.
In the blockchain industry, private key security is crucial. Private key leakage is a major problem facing wallets today.
In the second half of 2023 alone, bad actors stole $901 million from exchanges, bridges, and DeFi protocols. In November 2023, Meir Dolev, co-founder of the cybersecurity firm CyVers, posted a major contributing factor for these losses: "$773 million of $901 million lost was due to wallet access control issues." This statistic highlights the large financial risks caused by inadequate private key management.
This example highlights the critical importance of private key security. When these keys are leaked or stolen, it poses a severe risk. According to the 2023 CyVers Web3 Security report, “Typically, you won't even know the key has been compromised until the attacker has exploited it, which makes the threats all the more dangerous.”
MPC: The Ultimate Secure Crypto Key Management Solution
Secure Multi-Party Computation (MPC) has emerged as the undisputed security technology of choice for digital asset custodians, exchanges, and institutions.
MPC removes the risk of a single point of failure by not having a complete key in one place. This method prevents any single individual or machine from accessing the full key, significantly enhancing security.
Secure Multiparty Computation (MPC) is a cryptographic method. It allows a group to jointly compute a function using their private data, without sharing that data. In digital asset custody wallets, multiple parties hold parts of a private key.
Collectively, these core MPC attributes introduce many security, control, and operational benefits for institutional self-custody such as:
In a December 2023 blog, A16Z highlighted their excitement about MPC in 2024.
To learn more about MPC, visit our website today or contact us at emeasales@blockdaemon.com!