Decentralized Custodial Private Key Solution Launched by Austrian Security Agency
An Austrian high-security company with experience in e-governance solutions for the Australian government has launched Chainlock, a new decentralized private key management solution that mostly aims to target the B2B market. As a decentralized alternative to Coinbase Custody and BitGo, it will be interesting to see if institutions adopt the self custody model or continue to trust third parties to secure their coins, July 29, 2019.
Self Custodial Model
Most institutions adopt the custodial model of security simply because it is what they’re used to in traditional markets. Moreover, they aren’t experienced with security and custody, and are mostly just looking to gain investment exposure to a rapidly growing industry. This is why most institutional custody services are launched as pseudo centralized models where both the customer and company own slices of the key.
Chainlock allows for key generation through a highly secure procedure that is patented by YOUNIQX, the security company launching the product. The product is strengthened by robust counterfeit resistant protocol, offline access to coins, water and heat resistant hardware, and ease of use.
From a B2C angle, Chainlock has been adopted by Tokenize Exchange from Singapore as well as Coinfinity in Central Europe.
CipherTrace, a well-known cybersecurity company in the cryptocurrency space, revealed that between January and March 2019, nearly $1.2 billion was stolen in crypto just because of poor key management practices.
Private keys are the most essential part of Bitcoin security and are generated and revealed only to the owner. Encryption makes security a lot more resilient, but human errors often leak into the system, weakening the innate reliability of encryption.
Shift Away from Centralized Custody?
However, the SEC update that enforces rules on custodial players is very clear that self custodial models are not required to adhere to these laws.
Companies may start developing more self custodial models of key management to avoid the regulatory hassles of Customer Protection Rules. Additionally, customers themselves may find it less cumbersome to simply hire an internal team to take adequate measures when it comes to private key management.
For the time being, this is a pipe dream as institutions are used to having custodians. Being able to pin accountability on and blame a third party is a very convenient feature for most entities. Self custody requires the participant to be fully accountable for all their actions.