May 8, 2023

Eliminating Single Point of Failure in Qualified Digital Asset Custody

Qualified digital asset custodians' responsibility is to ensure the safety of digital assets as they are vulnerable to various risks, such as hacking, theft, or system failure. To mitigate these risks, it is important to eliminate any Single Point of Failure (SPOF) in product development and operational processes.
Eliminating Single Point of Failure in Qualified Digital Asset Custody

Qualified digital asset custodians' responsibility is to ensure the safety of digital assets as they are vulnerable to various risks, such as hacking, theft, or system failure. To mitigate these risks, it is important to eliminate any Single Point of Failure (SPOF) in product development and operational processes.  

What is a Single Point of Failure?

A SPOF is a particular point in a system where the failure of that point will cause the entire system to shut down. SPOFs can occur in various forms such as, hardware failure, power outage, or cyber threat. For instance, in qualified digital asset, if a single private key is used to protect all assets, a hack of that key would result in the total loss of digital assets. To eliminate the risk of a SPOF, qualified digital asset custodians employ various strategies such as Multi-Party Computation – Confidential Multiparty Computation (MPC-CMP), Multi-factor authentication (MFA), Policy Engine, and Resilient Architecture. By exploiting these strategies, custodians can minimize the chances of system failure and ensure their clients’ digital assets are secure and protected.

How to Eliminate Single Points of Failure in Qualified Digital Asset Custody?

Eliminating SPOF in qualified digital asset custody is very essential to ensure the security and safety of digital assets. The custody process has become more complex as the digital asset market grows, increasing the need to mitigate any potential risks to the system. Here are some ways to abolish the SPOF in qualified digital asset custody:  

Multi-Party Computation – Confidential Multiparty Computation (MPC-CMP) Technology

Utilizing MPC-CMP technology is one of the effective approaches to eliminate SPOF for qualified digital asset custodians. The technology distributes custody responsibilities across multiple parties and decentralized private key without revealing sensitive information. This technology removes SPOF by distributing the private key capable of accessing funds and digital assets into multiple encrypted key shares that must sign and agree on all transactions being signed from that wallet. Each key share independently computes their part of the signature in confidence from the other key shares while signing transactions as to secure their portion of the signature from potential compromises of key shares. With MPC-CPM, the access to digital assets then can be decentralized to multiple parties whether a device or entity, to remove risks from a single point of failure, preventing and safeguarding digital assets from cyber-attacks, internal collusion, and human error. This help qualified custodians to ensure the safety and security of their clients’ assets and provide a reliable and trustworthy service.

Multi-factor authentication (MFA) and Policy Engine

One of the alternative approaches to eliminating SPOF in qualified digital asset custody is through the implementation of MFA and policy engine. MFA is a security framework that requires clients to provide multiple authentication factors before they can access their digital assets. A Policy Engine is a component that enhances a set of security policies to ensure that only authorised users can access the system and digital assets. The number of required approvals can be set and customized by clients. Real-time monitoring and logging of all activities, including user and application behaviour, can help identify and respond to threats. This adds an extra layer of security to minimize the risk of unauthorized access and eliminates single points of failure for qualified digital asset custodians. At Rakkar Digital, we prioritize the security of our clients’ assets, using multi-factor authentication (MFA) and Policy Engine as one of our security strategies to verify and authenticate clients when using our custody.

Resilient Architecture

To eliminate SPOF in qualified digital asset custody, redundancy can be implemented by ensuring that redundant components such as storage devices, severs, and network connections are in place. In case of a failure one component, another can seamlessly take over, ensuring the system remains operational. It is also important to store these components in multiple locations to reduce the risk of data loss in the event of a system failure or breach. Moreover, having a proper recovery Standard Operating Procedure (SOP) in place is crucial for timely diagnosis of the issue and the generation of a new set of MPC keys. This provides an extra layer of protection and ensures that qualified digital asset custodians can continue to provide uninterrupted services to their clients.  

Conclusion

It is essential for qualified digital asset custodians to eliminate SPOF in their custody process to mitigate and prevent the risks. By utilizing the methods mentioned above, custodians can reduce the risk of system failure and provide a reliable and trustworthy service to their clients. At Rakkar Digital, we are committed to taking precautions and implement the latest security measures to protect our clients’ digital assets.  

About Rakkar

Rakkar stands as Asia's leading qualified digital asset custodian, offering unparalleled asset security to financial institutions. Fortified by our strategic backing from SCB 10X, the investment arm of the Siam Commercial Bank, Rakkar Digital helms the industry’s leading bank-calibre security measures and compliance frameworks. Founded in 2022 and belting esteemed security excellence certifications such as ISO 27001 and SOC 2 Type 1 and Type 2, Rakkar Digital remains unwavering in its mission to offer the most secure, institutional-grade custodian services across Asia.

Disclaimer: Digital assets involve risks; investors should complete independent due diligence and research to carefully make investments according to their own risk profile.
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Date
May 27, 2024
Category
Institutions
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