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Cold storage has traditionally been regarded as the most secure method of storing digital assets. However, a recently introduced institutional wallet challenges the traditional distinction between hot and cold wallets, offering institutions the opportunity to reevaluate digital asset allocation strategies for enhanced accessibility and reduced friction in treasury, trading, and custody operations.
Cold storage of digital assets traditionally refers to the use of a cold wallet, which has historically been considered a wallet platform that is not connected to the internet. The principle was straightforward: disconnect the wallet from the internet to minimize the risk of online attacks and require key personnel with privileged physical access to authorize transactions to minimize potential theft of digital assets.
The absence of network connectivity for cold wallets necessitates that approvers be physically present with the wallet. For institutions, multiple senior-level approvers are required, necessitating their physical presence on-site to approve each transaction from the cold wallet. Furthermore, best practices dictate a series of stringent, formal, and frequently manual procedures that must be executed prior to signing and transferring a transaction to a blockchain for processing.
For numerous institutions and custodians, this process frequently takes several hours, a full day, or even longer to complete, leading to slow, operationally demanding, and costly cold wallet transfers.
With rapidly changing market conditions, these delays can have huge financial implications. Furthermore, frequent transfers out of cold storage can be disruptive to operations and result in very high operational transaction costs.
For custodians and large institutions, cold wallets reside in secure environments, featuring stringent physical access controls. Special processes are frequently implemented to guarantee that transactions receive approval only after meeting a predetermined set of policies. Each transaction awaiting approval must be manually entered into the system through a physical procedure. After meeting the predefined policies, each approver employs their private key or key share to digitally sign and authorize the transaction. The signed transaction must subsequently be physically extracted from the system, employing a manual or physically isolated procedure. Then the signed transaction can be uploaded to a network where it can be forwarded to the associated blockchain for processing. Given the limited availability of executives, it becomes evident that air-gapped approval operations can span hours or even days.
Blockdaemon Wallet represents a groundbreaking institutional policy wallet, utilizing secure multi-party computation (MPC) technology. It is the first wallet to apply MPC to protect both the private key shares used to sign a transaction and the policies which must be satisfied before the key shares can be used to generate a signature. Blockdaemon Wallet also cryptographically enforces the policies, meaning the transaction cannot be signed until the policies associated with each transaction are fully satisfied.
Blockdaemon Wallet allows institutions to create a variety of wallets and apply different policies to different wallets, asset types, destinations, values, and more. By identifying one or more wallets as online cold or cool wallets, the same approvers needed for in-person authorizations using an air-gapped cold wallet can now asynchronously approve transactions from any location. Using Blockdaemon Wallet's mobile approval app, approvers can examine transaction requests, input their personal identification number, and undergo biometric authentication to verify, authorize, and approve transactions. All without the requirement to be in any particular physical location.
Since the wallet is connected online, transactions can be securely and automatically submitted for approval, policy verification, signing, and exportation for blockchain processing. The result is the security of cold storage with the accessibility of a hot wallet.
It is not suggested that cold wallets are without value or should be abandoned. However, if an online wallet can provide security and operational controls that are comparable with cold wallets, larger asset values can be stored online. This enables custodians and institutions managing self-custody to achieve significantly increased asset liquidity without enduring lengthy delays, operational disruptions, or additional expenses of frequent cold wallet transfers.
Cold, air-gapped wallets are ideal for digital assets intended for long-term holdings, involving significantly fewer transactions. Don’t hesitate to inquire about how Blockdaemon Wallet can also meet air-gapped cold wallet requirements.
Allow one of our wallet specialists to provide you with a brief overview of Blockdaemon Wallet. We can also provide a sandbox version of the wallet, allowing you to test its capabilities in creating robust and adaptable approval policies, among other features. Get in touch with Blockdaemon today!