Anchorage Wallets to Provide Users with Smart Storage Functionality via Hardware Security Modules
Anchorage Wallet Fuses Security and Usability
The tradeoff between usability and security on cryptocurrency wallets is a long-standing problem. Custodians of digital assets deal with a couple of issued to decide how to store the assets while offering the user full access to use the coins. The custodian architecture takes up certain risks on your digital assets such as:
- How much risk your assets are exposed to while in custody
- How much risk your assets are exposed to when used
- How quickly you can use your assets, and
- Whether you can safely participate in on-chain activities like staking and voting.
Hot wallets vs Cold Wallets
The conundrum between hot wallets and cold wallets is a continuing issue in the digital asset industry. Hot wallets are known to allow users easy access to their coins by holding them online. Cold wallets, on the other hand, offers the user higher security by holding the assets offline. In this setting on-demand access to your coins is sacrificed for security on cold wallets while hot wallets tradeoff security for access.
This is, however, the trade-off stance is a fallacy as the on-demand accessibility and maximum security are independent. This is how Anchorage Wallets are built, to give the user a secure wallet with no compromise on accessibility.
While hot wallets provide on-demand accessibility, most of the cryptocurrency exchange breaches have been on online wallets. The increase in hacks on online wallets made the cryptocurrency folk to term them as security concerns. The narrative caught on to terming cold wallet storage as safe and secure.
However, cold wallets do not directly assure the custodian of digital assets 100% security of the assets. Holding assets offline does greatly reduce certain kinds of risk, such as the risk of a remote hacker compromising the assets or the risk of private keys being accidentally exposed to the public internet. Other risks such as human error and mistakes are still in play on cold wallet storage hence the need for an even better means of storing clients’ funds.
Hardware Security Modules (HSM)
“HSM is a specialized device that can generate and hold private keys securely, and can use those keys to sign and approve transactions.”
Anchorage development team is working on a custodial architecture using hardware security modules (HSM) enhanced with business logic. The system will prevent hacks on the system by preventing the hackers from using your private key when certain criteria are not met as shown in the figure below.
The Anchorage HSM security system
The system uses multiple biometric authentication layers and a unique key to each user that is used to approve any sensitive transaction such as withdrawals, policy changes, etc. The custom business logic verifies the sensitive requests which are then approved by Anchorage and a quorum of clients on the system. This rigorous authentication standard, combined with Anchorage’s transaction review system, means we can provide on-demand private key accessibility for any operation once fully approved.
"The Anchorage approach to custody allows clients to use their keys for transactions, audits, staking, voting, delegation, and more, in real time and without ever being removed from safe storage." – @diogomonica https://t.co/etWnQnwDeS
— Anchorage (@Anchorage) April 9, 2019