Published Oct 1, 2020
By Anthony Foy, CEO Qredo
Qredo's unique innovation is the implementation of multi-party computation (MPC) on a Layer 2 network.
In this trustless MPC implementation, the multiple parties involved in the computation are coordinated using blockchain consensus, and digital asset ownership is tracked over the linked Layer 2 blockchain.
This enables the instant, secure transfer of digital assets between counterparties.
How Qredo's dMPC works
From the private key controlling the digital assets, Qredo's MPC protocol generates multiple independent secrets which are then distributed between MPC Nodes on a fast-finality blockchain.
Each MPC node is housed in a security-hardened tier 4 data center. These data centers are distributed across financial hubs around the world, from London to Chicago and Hong Kong.
When an asset owner wants to sign a transaction or generate a public key to make a deposit, they coordinate with their appointed custodians via the Qredo network to confirm the asset ownership on the blockchain, creating a consensus that enables the asset owner to invoke the MPC Nodes to run the MPC protocol from their Qredo wallet.
This protocol then generates a public address for digital assets to be deposited, or a digital signature for the underlying blockchain to send or receive digital assets from that address.
The benefits of decenralized MPC
By replacing cumbersome private key management with dMPC, Qredo makes digital assets immediately accessible, without compromising security. This allows users to enjoy the full benefit of digital assets as programmable money, and broadcast transactions instantly without fear of loss.
The linked blockchain not only fortifies the security of MPC by incorporating decentralized consensus into the process, but also acts as a Layer 2 network akin to Bitcoin's Lightning or Ethereum's Plasma.
This network transforms a simple custody solution into a blockchain-agnostic scaling mechanism—enabling digital asset managers to leapfrog the settlement delays, privacy issues, and security loopholes that arise from the centralized management of private keys.
By determining asset ownership with blockchain consensus, Qredo's MPC implementation eliminates the need for cumbersome safeguarding and sanity-checking processes.
Once signed, the ownership of the asset is transferred instantly between counterparties on the Qredo Network by moving the right to run the MPC protocol. This removes the need to rely on slow underlying chains like Bitcoin, which has settlement speeds ranging from 10 minutes to 2 hours.
As the Qredo network is blockchain-agnostic, it massively boosts settlement speeds between counterparties transacting on any blockchain.
Private keys stored online are a prime target for hackers, who have looted billions in crypto assets by attacking centralized hot wallets.
MPC offers the possibility of storing crypto assets online without compromising security. But when the devices running the MPC protocol are centralized, a single point of failure is reintroduced.
Qredo's dMPC distributes private key shares over a decentralized blockchain network, completely eliminating the single point of failure. Each MPC Node on the network has its own secrets. But the loss of a single secret doesn’t give an attacker any advantage in gaining control over the digital assets.
Instead of hacking a single machine and walking away with the private key, a hacker would need to compromise all the machines in the MPC Network, and each MPC node is housed in a high-security tier 4 data center.
If an attacker tried to gain unauthorized access by physically tampering with the MPC node, the keys used to encrypt the hard disk drive would self-destruct, permanently locking access to the operating system.
Clear transaction records
Each time the MPC nodes tap the Qredo blockchain to verify asset ownership, the consensus is recorded with a digital signature. These digital signatures act as an immutable audit record of which parties approved transfer requests, atomic swaps, or any other action involved in managing crypto assets on the Qredo Network.
This provides a 100% transparent and immutable record that can be made instantly accessible to regulators.
The transfer of the right to run the MPC protocol between counterparties on the Qredo network does not involve transacting on the underlying chain. This means transactions are not on the public blockchain like those made with Bitcoin or Ethereum, and cannot be traced by block explorers or blockchain forensic firms like Chainalysis.
On the Qredo network, all blockchain entries are made with reference to pseudonymous ’Account Code' that does not directly identify a single actor, and an ’Asset ID’ which reveals no specific information about the crypto asset.
MPC nodes can be mapped to specific organizational requirements, with various different numbers of trustees arranged in sets and subsets, and limited by specific thresholds.
Maintain senior claims
Instead of surrendering asset control as with centralized implementations of MPC, Qredo's trustless MPC implementation allows digital asset owners to retain senior claims over assets in custody.
At no point does the asset owner lose the right to run the MPC protocol. This allows them to exercise the highest priority claim over the assets at all times, reflecting the true ideals of crypto asset ownership—as laid out by pioneering laws in Wyoming and elsewhere—where control of the private keys is equivalent to possession.
Why dMPC is the future
Just as Bitcoin takes the trust out of transactions by removing the third party, MPC can take the trust out of private key management.
But unless the MPC protocol is driven by decentralized consensus, it risks replicating the same security loopholes and settlement delays of centralized private key management.
Consensus-driven MPC liberates digital assets from these problems, setting them free to be securely staked, loaned, or traded in the rapidly growing DeFi ecosystem.
Find out more visit qredo.com to learn about Qredo Protocol for cross-chain liquidity. A layer 2 network for tracking and settlement of digital assets that solves the security risk of centralized private key management.
You may also like What is Multi-Party Computation? An introduction to the origins and applications of MPC by Qredo Co-Founder Brian Spector.