Following the recent collapse of FTX, it has become apparent that trusting centralized authorities or third parties to store crypto assets is relatively risky. The number of voices favoring decentralized private data solutions has grown stronger, and the self-custody movement is undoubtedly gathering pace.
One of the most daunting aspects of the blockchain world remains security. Blockchain encryption technology fundamentally functions as a security technology. Sure, well-encrypted, well-designed code provides safety on-chain.
Unfortunately, the risks most people face relate to how well they protect their private data and maintain control over their assets off-chain. Ownership and custody are the most significant single risks most people face. Ultimately, all risks in this sector boil down to this vulnerability.
Most people actively engaging with the blockchain ecosystem first encounter this risk once they figure out how to purchase digital assets. After they take that initial plunge, the next major concern and learning curve typically involves deciding how and where to store their assets. Thus, they soon become acquainted with the wallet situation.
Digital Custody – Wallets
If you intend to remain active within the web3 and blockchain community, no one can afford to ignore or relegate these concerns to a lower priority. Unlike physical assets, digital assets operate on a digital ledger. That ledger and its transactions get encrypted and therefore require some form of digital storage solution. These storage options are commonly referred to as wallets. Typically, these wallet solutions function more like an online account than a physical cash wallet. Moreover, they allow users to practice self-custody and transfer funds without needing a third-party gatekeeper.
Digital wallets consist of public and private keys, a sequence of characters that allow holders to receive and transfer their crypto assets. Currently, two types of digital wallets exist. The storage options depend on one’s preference. So-called “hot” storage is referred to as such because they use an application or a similar web-connected platform. Contrastingly, “cold” storage is entirely offline storage that typically requires a physical device to manage access. While both hot and cold options provide a storage solution for one’s digital funds, the differences between user experiences and security levels determine which type will suit a user’s needs.
Deciding which option fits your needs depends on personal risk tolerance and specific needs. Indeed, neither option solves all of the issues. For most people, the correct answer may involve a combination of the two options.
As stated, hot wallets typically use an internet-based application or platform that allows users to manage their digital holdings. Some examples of hot wallets include MetaMask, Phantom Wallet, Keplr and Trust Wallet. The list goes on from there, but those three represent some of the more popular options.
Hot wallets are generally user-friendly and intuitive, with a minimal learning curve. They allow users to store digital assets like cryptocurrencies, NFTs, and the like in an easily-accessible platform. Predominantly, these hot wallets are free to use and only charge fees to facilitate transactions or transfers. Even then, the costs remain pretty minimal. Since hot wallets only require access to a computer, they provide a significant amount of convenience for users. Generally, they also offer a decent level of security alongside a simple and easy-to-use interface.
While all that sounds great, hot wallets carry some clear disadvantages. Their reliance on internet connectivity makes them more susceptible to hacking. However, the more alarming concern is the vulnerability of seed phrases to social engineering or broad-scale data scraping hacks. Their connectivity also makes them somewhat vulnerable to restriction of use within some parts of the world. While blockchain technology aims to flatten centralization, we must never forget that we have yet to achieve it fully. The risks, therefore, persist.
The Cold Shoulder
Cold storage holds a user’s private keys in a physical dongle that remains offline. By adding an extra layer of security to one’s digital holdings, the hope is to insulate oneself from potential hacks by making the devices significantly less vulnerable to cyberattacks. Hardware wallets up to this point have represented the digital gold standard in security because they create a hard physical break between one’s assets and their accessibility.
Highly portable, cold storage solutions incorporate small, digital plug-in devices that users can carry or store according to their access needs and preferences. With cold storage, the potentiality for compromise gets reduced significantly since one’s private keys never leave the device, and all transactions must be authorized locally. By adding this physical barrier, cold storage users can exercise maximum autonomy and self-custody, eliminating third-party application access to your storage.
Ultimately, cold storage gives users complete control – and therefore full responsibility – over their private keys, passwords, and assets. While that sounds similarly pretty great, this option does have some associated drawbacks.
The first and most obvious concern revolves around cost. Hardware wallets range in price from under $100 to well into the hundreds. Cold storage will hit your bank balance upfront, costing significantly more than competing online options. Along with the additional cost, using cold wallets requires more technical knowledge and familiarity with the technology. Likewise, these devices add an inconvenience factor, making them more cumbersome than hot storage wallets. At the end of the day, cold storage still requires hardware, shifting a web3 blockchain problem to a traditional web2 solution. It matters not how good that hardware is. Its physicality can prove to be a major hindrance or disadvantage. Regaining access to one’s assets if the physical device gets lost has so far proven to be a bit of an impediment. Not to mention that access to your digital funds from anywhere at any time remains unachievable.
The Serenity Shield On-Chain Solution
The Serenity Shield team has imagined something altogether different. We have developed the first fully on-chain data security solution as a front-facing security gate and soon for bulk data storage. As the team continues to build our solution, we have already oriented our aim beyond just protecting seed phrases and passwords. We will soon be able to provide our users with completely decentralized, fully encrypted, entirely on-chain data storage that obviates the need for a physical security device like cold wallets do.
Serenity Shield uses blockchain smart contracts hosted on Secret Network (among others) to back up our users’ data. Employing blockchain technology allows for end-to-end encryption, only accessible by those elected to have access. Serenity Shield uses blockchain technology to solve a blockchain problem, meaning that users require no hardware to protect the most valuable commodity of all – their data. Moreover, users do not compromise their privacy or security, despite everything remaining entirely on-chain.
At the most fundamental level, Serenity Shield’s StrongBox utility is a cryptographic, fully on-chain, cold data storage solution.
The simple fact of the matter is this. Technology will continue to change. We could no sooner stop the tides than the march of technological development. If we are to make full use of the blockchain, we need to understand it and ensure that it works for us, not against us. We are responsible for ensuring these new and novel technologies remain human-centered, and we want to invite you to join us on this journey.
Please join us on our Telegram channel. There, you will be the first to know about official project announcements and developments. You can also find us on Twitter, Discord, and our website. Please visit our whitepaper and previous articles here for a more in-depth discussion of our project. We are always available on all of our platforms to assist with your questions.