Blockdaemon Blog

Advanced MPC: Future Proofing Digital Asset Custody

Wallet
Aug 3, 2021
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Accelerating institutional investment, the advent of tokenization, and broad adoption of DeFi and payment services through digital assets have become the main drivers of rapid growth in digital asset markets.

Accelerating institutional investment, the advent of tokenization, and broad adoption of DeFi and payment services through digital assets have become the main drivers of rapid growth in digital asset markets. Changing use cases and regulatory mandates related to the custody and management of digital assets requires more flexible and higher performing forms of private key security, ushering in the need for more advanced forms of Multiparty Computation (MPC) often used to protect wallets.

Book a call for your very own demo of the Blockdaemon Wallet™, or read on to get a closer look at what’s new.

Current Wallet Landscape

Current custody solutions provide the capability for private key storage, enabling better control, transparency, and security of digital assets. However, understanding the evolving requirements for controlling private keys is essential for creating digital custody solutions of the future.

Existing approaches of using a variety of technologies and infrastructure for different digital asset services offered by exchanges, custody providers, and others have been created gradually over time. Many of these approaches were put in place when the market was in a down-cycle and the emphasis was appropriately on the expansion of new services and adding clients, with less focus on building an infrastructure for the long run.

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. In many cases, incremental evolutionary changes will prove insufficient, warranting upgrades to proven modern technology and solutions needed.

Emerging Advanced MPC Wallet Requirements

These advancements will address:

  • New ways of private key management, protection, and transaction signing even in hostile environments
  • Elimination of single points of failure combined with high availability
  • Secure online/offline transactions from any device, anywhere, anytime
  • Technology agnostic of the digital asset type at the lowest transaction and operations costs
  • Deployable on demand for new and scale-up services in any jurisdiction for any wallet types – cold, warm, hot, or operational wallets and any custody model supporting regulated and unregulated services

The table below depicts different institutional wallet types used by exchanges and custody providers, how wallets are utilized, and the required service attributes associated with each wallet. The most commonly deployed wallets fall short in meeting the required service attributes.

Comparison of Digital Asset Wallet Types

The table below depicts different institutional wallet types used by exchanges and custody providers, how wallets are utilized, and the required service attributes associated with each wallet. The most commonly deployed wallets fall short in meeting the required service attributes.

Digital Asset Wallet Comparison Table

Modern cryptography and approaches to custody technologies and services will be at the core of digital asset proliferation. In recent years MPC has emerged as the technology of choice for custody providers, exchanges, and financial institutions offering custody and shared custody services. MPC has proven an attractive replacement for MultiSig wallets, facilitating multiparty approval with a more efficient and lower cost operational model, which is capable of supporting all digital asset types.

Advanced MPC is rapidly becoming the institutional-grade wallet technology of choice, using threshold cryptography optimized for digital asset custody providers, exchanges, and banking services. Advanced MPC can be used for cold, hot, and operational wallet applications. It provides a future-proof and universal custody infrastructure technology supporting superior security, for the institutional market with the highest scalable/performance to secure online/offline transactions on any device from anywhere. The building blocks of Advanced MPC can be found in this blog.

Transitioning to Advanced MPC

For brownfield services deployed by crypto-native companies the technology transition to use Advanced MPC can be incremental and implemented in a phased approach to avoid forklift upgrades.

For greenfield deployments like financial institutions, banks, and others, there are different ways for them to enter digital asset markets that range from custody for safekeeping of their customer’s asset to trading and prime brokerage services. They have the option to:

  • Build an end-to-end service from the ground up and/or using their existing building blocks
  • Acquire or license best of breed technology building blocks and build an end-to-end digital asset platform
  • Work with sub-custody providers and rely on their vision, expertise, services, and roadmap. This model is typically a short-term approach and may be a good fit for institutions that are entering the market to gain experience and build-up early services. The potential for business and roadmap misalignment and differentiating services are some of the drawbacks of this model.

Large banks will have to decide whether to invest in developing their own core technologies and platforms, licensing Advanced MPC from proven and reliable technology suppliers, licensing turn-key platform solutions, or integrating with third parties to deliver digital asset custody services quickly for the short term.

Blockdaemon is the Market Leader and Pioneer in Advanced MPC

As the wallet landscape evolves, adoption of more advanced forms of MPC like the Blockdaemon Wallet becomes inevitable. These wallets help address the security, scalability, and performance issues of the past and prepare organizations for the future demands of digital asset custody and management.

If you are looking to future proof your digital asset custody, consider Blockdaemon. With years of experience and a proven track record of delivering high quality and durable solutions, Blockdaemon is ready to help your organization make the transition with ease.

If you have any questions or want to learn more, contact Blockdaemon's sales team today. Get started on your journey towards a more secure, scalable, and future-proof digital asset management system.

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