Security of Crypto assets and Crypto-currency

Securing crypto assets is a complex process that requires in-depth knowledge within an organisation and can be designed differently depending on the needs of the company. Design considerations have to include different areas within the organisation, while ensuring the information is not leaked to and access is limited. Three topics we will consider in this article are:

Securing Data

Most companies require their data to be stored in a secure location with quick access. Data at Rest (DAR) is the process of storing data that is either online or offline. The core benefits of using DAR include storing data that you are able to physically control and limit the access to.

A key disadvantage with storing the crypto assets and crypto-currency keys at rest in offline storage. An alternative method is the encryption of data stored within hardware, such as a Hardware Security Module (HSM), which is a form of symmetric key that allows for the same key to be used in encryption and decryption. This means that the storage of assets will be secure and decrypted when moved.

 How do you move secure data? (Data in motion)

Storage of data is a key component of the data cycle to consider when designing solutions, the second is considering security during the process moving secured data. You can do this by a process of asymmetric keys, which come in pairs:

  • Public key - this will encrypt the data and is shared for people that need to encrypt the data;
  • Private key - this is kept securely and is only meant to be accessible for the person intended (this will be used to decrypt the data)

A few core advantages of this process allowing the data to be moved between parties, creating considerable difficulty for breaches during transfer, as well as only permitting users to add data, rather than reading it as well. The key pair has an additional security advantage that is simultaneously a user-experience disadvantage: it requires a considerably lengthy encryption key that is not ideal for easy key management.

Secure storage of crypto assets 

Security engineers often enjoy a wide array of options for secure storage. The use of a SED (self-encrypting drives) enables the securing of data at a scalable size, valuable for enterprise-grade operations. A DEK (disk encryption key) is used to encrypt the crypto asset before it is incorporated into the drive, with the same DEK being used to decrypt and extract data. This is typically a fast process to encrypt large amounts of data at rest. However, depending on the number of users, the process of providing the DEK can be slowed considerably if assets and keys need to be accessed often by stakeholders.

Another way to secure data is through HSM. These are devices similar to SEDs, but provide some flexibility in balancing security and accessibility, meeting the requirements for efficient custody of the keys. The use of cryptographic encryption in these devices will be enhanced by their cryptographic engine to improve this process of encrypting and decrypting the data. While HSMs can be stored locally, based on latency and capacity fluctuations we usually recommend cloud-based implementations.

The Unsafe link: wallets

A significant vulnerability can be found in wallets linked to a digital-currency system, with the issues being located at an application level. In order to ensure the risks related to wallets as a method of storage, a private key corresponding to the cryptographic object needs to be generated and secured.

Cold and hot storage

Maintaining a basic strategy of storing private keys on personal computers is operationally unsound due to the many vulnerabilities found today in retail computing devices. Most owners choose to store their data using “Cold Storage” methods, effectively disconnecting the wallet from the internet. The most common types of cold storage are small memory devices (i.e. USB drives), which are non-scalable solutions and the risk of physical loss is one of many operational risks. Wallet providers should maintain a dedicated crypto key-store that includes HSM for its customers that can be ran on premise. Cold wallets are a secure way to store the data but will add latency when said data needs to be retrieved.

If latency is a priority attribute instead of security, the alternative would be to utilise a “Hot Storage” strategy. Hot storage wallets are connected to the internet allowing remote access.

A third option would be utilise hybrid solutions containing relative levels of security and liquidity adjusted based on end-user criteria, however most end-users will probably focus on maximizing either of the opposing features.

What is Multi-signature?

Multi-signature requires multiple people in a group to authorise the actions linked to the management of crypto-assets. Depending on the group governance, this should mitigate the risk of rogue persons using their access to a private key resulting in theft or misuse of crypto-assets. Additional functions linked to multi-signatures are currently being researched.


Digital assets such as Bitcoin or other cryptocurrencies are fundamentally different from traditional assets, with most investors (such as institutional investors) having particularly specific expectations with respect to custody. Digital assets are bearer instruments whoever has the key is the owner of the asset. This makes them hard to track or recover if lost or stolen. The risk of financial loss is significant and over the past few years millions of Bitcoin have been lost due to hacking and fraud. Custody firms are evolving, trying to determine how best to meet the needs of such institutional customers, to ensure adequate storage can be maintained. Each owner of a digital asset has a private key (a unique number generated by a digital asset wallet) that would enable its holder to transact specific crypto-assets.

Closing Remarks

In my opinion, the security of crypto assets and crypto-currency is a very complicated process that needs to be understood more thoroughly. Security will need to be built progressively in layers and balancing features is important. I would suggest any engineers working on designing a custody solution that it is able to handle the considerable volumes of data expected as part of transactions. Secondly, they consider thoroughly how data is stored inside of the drives, including encryption at rest and when being transferred between parties. Asymmetric key pairs and cold storage are often a viable solution to this. Third, ensuring access is limited to only relevant parties as to minimise the risk of bad actors are not a significant operational risk. Multi-signature is a technology that lowers the risks of people being able to access wallet contents without the authority to do so.

But of cause it will always depend on your needs and uses.