Enhancing Crypto-Asset Security with Shared-Custodial Wallets

The growing adoption of digital assets has heightened the demand for secure and efficient management tools. A recent paper, Shared-Custodial Wallet for Multi-Party Crypto-Asset Management, authored by Yebo Feng (Nanyang Technological University), Yimika Enrile, Jiahua Xu, Nikhil Vadgama, and Paolo Tasca (UCL CBT, DLT Science Foundation, and Exponential Science), introduces a novel shared-custodial wallet architecture.

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The wallet model employs Multi-Party Computation (MPC) and Threshold Signature Schemes (TSS) to address key vulnerabilities in traditional single-signature wallets, such as single points of failure and complex recovery processes, or performance, privacy and cost issues in multi-signature schemes.

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A Shared-Custodial Approach

The wallet splits private key control among three entities: the client user, the wealth manager, and the custody platform; which, together with the Blockchain System and the Centralised Exchange (CeX), comprise the system architecture. Using a 2-of-3 MPC-TSS model, transactions require approval from at least two parties, ensuring security while maintaining operational flexibility. Key features include:

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• Distributed Key Generation (DKG): Collaborative, secure key generation without revealing individual key shares.
• Threshold Signatures: Secure multi-party transaction authorisation.
• Decentralised Recovery (DeReC): Ensures access restoration if a key share is lost, without compromising security.

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Benefits for Wealth Management

This wallet model is particularly suited for wealth management, offering a secure, user-friendly platform for managing diverse digital assets. Advanced tools like AI-driven portfolio optimisation, transaction monitoring, and compliance support, enable wealth managers to provide personalised services while managing client portfolios efficiently.

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The model ensures users retain full control over their assets, with transactions requiring explicit consent, bolstering trust and security. 

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Additionally, features like staking and lending offer clients passive income opportunities, while scalable revenue opportunities, via transaction and performance fees, enhance the value proposition. This makes the wallet an essential tool for bridging traditional finance with digital asset management.

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The shared-custodial wallet model represents a major step forward in secure and efficient crypto-asset management, combining decentralised key management, securely distributed recovery, and efficient transaction oversight. By integrating MPC and TSS, it delivers a robust and practical solution for crypto-asset management, mitigating key compromise risks while ensuring usability.

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Read the full paper 👇