Blockchain Key Switching Between Custodial and User-Held Storage

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Solution Overview

Problem

Centralized exchanges in decentralized blockchain networks are vulnerable to cyber-attacks due to storing user private keys in custodial data files, compromising data security and user access to digital possessions.

Innovation Solution

A system and method for swiftly and securely switching between custodial and non-custodial data files by using a virtual toggle switch, enabling users to manage their private keys locally, thereby avoiding central server control and potential cyber-attacks.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Ease of operation

If centralized exchanges store user private keys in custodial data files to enable easy access and management, then ease of operation is improved, but data security deteriorates due to vulnerability to cyber-attacks

Engineering Contradiction:

Improveease of private key managementVSAvoiddata security

Core Design Contradiction:

Ease of operationVSReliability

Solution Approach 1:

The system dynamically switches between custodial and non-custodial data file modes based on user needs. The exchange can transition from storing private keys centrally (easy operation) to allowing users to store keys locally (enhanced security) and back again, providing flexibility to balance operational convenience with security requirements

Inventive Principle:

Principle #15Dynamics

Solution Approach 2:

The exchange acts as an intermediary that facilitates secure key transfer between custodial and non-custodial storage. It provides the infrastructure for users to retrieve their private keys from secure storage and transfer them to their own devices, enabling the transition from centralized to decentralized key management without compromising security

Inventive Principle:

Principle #24Intermediary (Mediator)

2Productivity

If centralized exchanges maintain control of user private keys to simplify transaction processing, then productivity is improved, but loss of information increases due to potential theft from cyber-attacks

Engineering Contradiction:

Improvetransaction processing efficiencyVSAvoidprivate key theft risk

Core Design Contradiction:

ProductivityVSLoss of information

Solution Approach 1:

The system performs preliminary secure storage of private keys in custodial data files with enhanced security measures before users need to access them. This allows the exchange to maintain productivity by having keys ready when needed, while simultaneously preparing for secure transfer to non-custodial storage to prevent theft

Inventive Principle:

Principle #10Preliminary action

Solution Approach 2:

The system changes the security parameters of private key storage by transitioning from custodial (exchange-controlled) to non-custodial (user-controlled) data files. This parameter change allows the exchange to maintain transaction processing efficiency while reducing the risk of information loss through theft

Inventive Principle:

Principle #35Parameter changes

3Reliability

If users store private keys locally in non-custodial data files to enhance security, then data security is improved, but ease of operation deteriorates due to complex key management

Engineering Contradiction:

Improvedata securityVSAvoidprivate key management complexity

Core Design Contradiction:

ReliabilityVSEase of operation

Solution Approach 1:

The exchange serves as an intermediary that simplifies the process of managing non-custodial data files. It provides tools and infrastructure that make it easier for users to securely store, retrieve, and transfer their private keys, reducing the operational complexity of enhanced security measures

Inventive Principle:

Principle #24Intermediary (Mediator)

Solution Approach 2:

The system enables users to independently manage their own private keys in non-custodial data files without requiring continuous exchange intervention. Users can autonomously perform secure key storage and transfer operations, which enhances security while the exchange provides supporting infrastructure to maintain ease of operation

Inventive Principle:

Principle #25Self-service

4Adaptability or versatility

If centralized exchanges allow swift switching between custodial and non-custodial data files to provide flexibility, then adaptability is improved, but device complexity increases due to switching mechanisms

Engineering Contradiction:

Improvedata file switching flexibilityVSAvoidswitching mechanism complexity

Core Design Contradiction:

Adaptability or versatilityVSDevice complexity

Solution Approach 1:

The switching mechanism is designed to be dynamic rather than static, allowing smooth transitions between custodial and non-custodial modes. The exchange can adapt its key management approach in real-time based on user preferences and security requirements, providing flexibility while managing complexity through automated processes

Inventive Principle:

Principle #15Dynamics

Data Source

PatentUS12567986B2Performing secure data interactions in a distributed network

Publication Date: 2026.03.03 BANK OF AMERICA CORP

AI summary

A system includes a plurality of computing nodes that form a blockchain network comprising a first user device of a user and a centralized exchange server that stores a first data file of a first type for the user comprising a private key used to perform data interactions relating to data objects of the user stored in the blockchain network. The central exchange server comprises a processor that receive a first request to switch the first data file from a first type to a second type, exports the private key to the first user device and deletes the private key from the first data file. The processor receives a second request to switch the second data file of the second type to the first data file of the first type, imports the private key to the first data file and deletes the private key from the second data file.