Setting multiple approvers to avoid fund loss in cryptocurrency wallets

發佈於 Feb 11, 2019 | 部落格

QuadrigaCX, the largest cryptocurrency exchange in Canada, made the headlines recently for a very unfortunate reason. The exchange CEO, Gerald Cotten, passed away leaving no access to the exchange’s cold wallets. The cold wallets stored $190 million in different cryptocurrencies, including Bitcoin, Bitcoin Cash, Bitcoin Gold, Litecoin and Ethereum, both from the exchange and from its users. All these funds are lost since there is no way to retrieve the private keys.

The exchange CEO was solely in control of the entire funds storage. Despite that storing the funds in a cold wallet is a common practice amongst cryptocurrency exchanges — because of the secure nature of this type of storage-, it is highly inadvisable to limit the access to such resources to a single person. The reason is that situations such as the above mentioned can happen, regardless how unlikely they might seem.

This single point of failure situation could have been avoided by establishing a multi-signature policy on different cold wallets, requiring M-of-N signatures to access to the funds.

Limitations of multi-signature wallets

The problem of multi-signature wallets is that they usually do not match with the actual business structure. A multi-signature wallet assumes that every signing part has the same authority level. In many companies this is usually not the case. An accountant has not the same approval authority level as the CFO of the company. For this same reason a multi-signature wallet is susceptible to malicious behavior, where some of the signing parts could agree to bypass a legitimate operator.

In addition, multi-signature wallets also present a fragmented user experience, requiring different devices and applications. Different operators may use different signing devices, and may need to synchronize using instant messages). This is not only introducing management overhead for each operation, unacceptable for regular transactions, but it also may introduce security weak points.

How CYBAVO VAULT solves this problem

CYBAVO VAULT implements a multi-level, threshold approval chain which supports M-of-N approvals to sign a transaction.

For instance, an exchange CEO could define an approval chain with multiple levels. A first approval level could be established for low amount transactions. These would be for regular operations and would not require the attention of higher-level management.

A second approval level could be configured to be required only for transactions above certain amount. For instance, we could establish a second level of approval, only required for transactions above 500 bitcoin, where 2-of-3 signatures would be required for the approval.

Finally, a third level of approval could be established for large amount transactions, requiring the signature of either the CFO or the CEO (1-of-2 configuration). A transaction like that would need to be approved sequentially from the first to the third level, in order to be successfully executed.

Approval chain for a transaction in CYBAVO VAULT
Approval chain for a transaction in CYBAVO VAULT

All this approval chain would be executed within CYBAVO VAULT infrastructure. Each stakeholder could easily approve their transaction in a secure way from a mobile phone with CYBAVO Authenticator App, after receiving an “action-required” notification.

A properly defined approval policy with a full-stack protected solution like CYBAVO, can help avoiding the risk of a single point of failure in an approval process, reducing the risk of losing the access to the funds.

Approval can be performed from CYBAVO VAULT Authenticator app
Approval can be performed from CYBAVO VAULT Authenticator app

Use CYBAVO VAULT to securely store your crypto assets, manage multi-currency wallets, define different roles and permissions, set up transaction policies for each wallet and user, including transaction limits, address whitelist and approval chain. You can also schedule and automate transactions, and have access to a comprehensive log. Operate your crypto assets as if you would own a corporate bank. Everything from an easy-to-use interface and secured by our cutting-edge protection technology.

Learn more about how CYBAVO VAULT can help protecting and managing your company’s crypto assets on our website.