Cryptocurrency Escrow Using Segmented Multi-Signature Keys
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Solution Overview
Problem
Cryptocurrency exchanges and wallets face significant security breaches due to unauthorized access to private keys, leading to substantial economic losses and erosion of trust within the ecosystem, with existing security strategies proving inadequate against sophisticated hacking attacks.
Innovation Solution
A computer-implemented method and system that establishes secure communication between a depositor's device and a secure cryptocurrency depository, utilizing multi-signature addresses, hardware tokens, and provisional transaction templates to prevent theft by allowing secure transfer of funds even if private keys or hardware tokens are lost or stolen, ensuring secure escrow and safekeeping of cryptocurrencies.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If custodial cryptocurrency exchanges and wallets store funds using private keys, then transaction settlement and fund management are enabled, but security breaches and unauthorized access lead to theft of cryptocurrencies
Solution Approach 1:
The patent divides the private key security function into multiple independent components: a first private key stored in a first cryptocurrency wallet, a second private key stored in a second cryptocurrency wallet, and a third private key stored in a secure element. Each component holds only a portion of the security credentials, so that compromise of one wallet or storage location does not result in total loss of funds. This segmentation prevents single-point failures and unauthorized access.
Solution Approach 2:
The patent introduces a trusted third party escrow service as an intermediary that holds a fourth private key. This escrow service acts as a mediator that can facilitate recovery of funds if the user loses access to their wallets, while still maintaining security through multi-signature requirements. The escrow private key alone cannot spend funds; it must be combined with other keys, preventing unauthorized access while enabling legitimate recovery scenarios.
2Reliability
If multi-signature arrangements with third-parties are implemented, then security against unauthorized access is improved, but transaction complexity and operational overhead increase
Solution Approach 1:
The patent segments the multi-signature requirements into distinct key pairs and storage locations. Instead of a complex centralized multi-signature system, the user's funds are divided across multiple independent wallets, each with simpler key management. The first and second wallets can each independently sign transactions for their respective portions, reducing the operational complexity of managing a single complex multi-signature arrangement while maintaining equivalent security through distribution.
3Reliability
If hot-wallets coupled with cold/offline storage are used, then security against online attacks is enhanced, but accessibility and transaction speed are reduced
Solution Approach 1:
The patent divides cryptocurrency holdings into segments stored in different wallets with different security profiles. The first cryptocurrency wallet can be configured as a hot wallet for frequent, smaller transactions requiring faster access, while the second cryptocurrency wallet serves as a cold wallet for larger, less frequent transactions prioritizing security. This segmentation allows the user to optimize transaction speed for routine operations while maintaining secure offline storage for significant assets, eliminating the need to choose between speed and security.
Data Source
AI summary
There is provided a computer-implemented method, a computer system and a cryptocurrency depository for enabling secure escrow and safekeeping of a cryptocurrency. The computer implemented method starts by establishing a secure communication between a first party device associated with a depositor of the cryptocurrency and a second party device associated with a secure cryptocurrency depository, in a cryptocurrency network. The secure cryptocurrency depository is a secure cryptocurrency escrow and/or a secure cryptocurrency vault. Further, the first party device and/or the second party device is enabled to transfer the available funds/tokens away from the multi-signature address using the second partially signed provisional transaction template and/or the first partially signed provisional transaction template in possession of the first party device and second party device respectively, in case the first party and/or second party private-keys/secrets and/or the hardware tokens are lost/stolen, thereby preventing theft.