Deep in the Swiss mountains, underground vaults hold a vast fortune in physical assets like bearer shares, gold and precious art. Over the last decade, a new asset class has joined this treasure trove. Hard drives containing bitcoin have been stored here by high-net-worth individuals in an extreme example of the custody method known as "cold storage".
Many are claiming this to be the most secure way of storing cryptocurrency, but relying on the same mechanisms used for the historical custody of physical assets, and trusting somebody with your keys, results in the same old vulnerabilities.
Taking cryptocurrency offline — in air-gapped USB wallets or in secret underground vaults — can prevent cryptocurrency from being stolen by hackers, but it cannot remove the ever-present security risk of human error.
People: The weakest link in the custody chain
People are not only prone to mistakes, but easy to trick and manipulate. They can be blackmailed, or act out of character, and even the most trustworthy individual can take a turn for the worse.
In the old world of physical assets, this human corruption leads to gold, cash, or other valuable assets being smuggled out of vaults, often by trusted employees.
In the digital world, theft is also a possibility, and if assets are not lost through technical mistakes, they can be lost through the betrayal of trust—which is made all the more likely by the hope of possible anonymity.
As a result, most of the major breaches in cyber security can be traced back to human failings. This was shown by IBM's 2016 Cyber Security Intelligence Index, which found that 60 percent of all attacks were carried out by insiders.
Find out how Qredo solves the problem of cryptocurrency security in our white paper.
A cryptographic custody solution
The sensitive data held by traditional firms is tempting for potential attackers, but the riches held by cryptocurrency platforms are irresistible.
As such, the cryptocurrency world is full of cautionary tales about human weakness, like the case of QuadrigaCX, where founder Gerald Cotten died holding the virtual keys for digital wallets containing $145 million in customer's cryptocurrency. Following an investigation, it was revealed that he had transferred millions of dollars in crypto from customer accounts to other exchanges, with the funds allegedly being used to furnish his lavish lifestyle and trading habits.
But whether his actions were intentionally malicious or not, the event highlights the critical human weakness that is present when you trust another person with your keys. No matter how many complex processes are involved, it is this factor that makes cold storage fundamentally flawed.
And what makes custody failures like this one even more tragic, is that they can be prevented: When value is digital, it does not need to be kept in the same way as a physical asset—in one location, and under one person's control.
Decentralized assets allow for new models of custody, that remove the weak human link with infallible cryptography; replacing the need to trust with the ability to verify.
Don’t trust, verify
Instead of relying on trust, Qredo’s decentralized network allows any party to cryptographically confirm and verify through the asset’s native blockchain that the digital assets truly exist in the custodial wallet.
All communications over the Qredo network are encrypted and digitally signed by the sending and receiving parties. These digital signatures are stored as a permanent record on the Qredo Custody Network, enabling completely transparent regulatory compliance, audit and corporate governance.
Extensive Cryptocurrency Support
Qredo’s Custody Network offers support for the highest number of cryptocurrencies and security tokens on the market today. To find out more, you can sign up for a demo here or click the link below to download our white paper.