One of the underlying main ideas of blockchain and cryptocurrencies is offering top-notch security through immutability. For this, blockchain-based wallets are crucially dependent on a single private key. Should that private key be lost or stolen, the owner of the wallet might either be locked out of their account forever or get their funds compromised by a third party. Business Malta discusses the risks and possible solutions for this with Ruben Merre, CEO and Cofounder of NGRAVE, a fully end-to-end solution aiming to manage and safeguard cryptocurrencies. Brussels-based NGRAVE’s development is in its second phase, and after the planned rollout by end-2019 the latest, the company hopes to set up shop in Malta by the end of 2020.
Digital payment has come a long way since Edward Bellamy first conceptualised a card used for payment instead of cash in his utopian novel entitled Looking Backward, published in 1887. When the first bank cards were introduced by the end of the 1960s, people appeared to be reluctant to shift habits and pay with a piece of plastic instead of hard cash. Nowadays, producing, updating and using cash — in some cases — can be costlier than card payments. With the spreading use of non-cash payments, hacking the online systems of banks started pacing out movie-like robberies of brick and mortar branches. Security is of elevated importance today in online finances. The blockchain and crypto world strive to disrupt this space; time will tell if hype can solidify.
Transactions in blockchain systems and the storage of tokens — let them be cryptocurrencies or any data — happen in wallets. The access for these wallets — for enhanced security purposes — is through a long private key of haphazard words or symbols. NGRAVE CEO Ruben Merre believes that, while this is a crucial part of the inherent strength of blockchain technology it also is the Achilles heel of the whole ecosystem, at least for the time being.
“The problem lies in how well private keys are managed and protected. Blockchain is an incredible technology and provides a lot of previously unseen security points. It has at least one big Achilles heel though: the private key(s).”
While private keys are part of the inherent strength of the technology, they are often seen as the single-point-of-failure when we look closer at blockchain wallets. A party that gets its hands on the private key can immediately assume full ownership of the wallet’s contents. Moreover, if one loses the private key to their wallet, they lose access to their funds forever, because of the inherent asymmetric (statistically unbreakable) cryptographic relationship between private key (password) and public key (address).
“Hence, security can be improved by optimising the way private keys are managed and protected. First of all, they should be created offline. That way, no third party can know what the key actually is. After that, the associated addresses — which themselves contain no sensitive data that can be tied back to the private key(s) — can be communicated to an online source,” Mr Merre describes. “It is crucial to be able to sign transactions with the private key, but without exposing the private key to an online connection. If you can do all of this offline, you have a very secure solution.”
Another aspect that needs extra thought is improving the backup procedure of one’s private key. “In today’s crypto space, over 90% of people keep their private key on a piece of paper. Completely paradoxical, considering this new and hot technology called blockchain. It almost feels like going back to the stone age. Yet it is a vast reality,” Mr Merre says. He proposes that the solutions offered by his company might be able to bring peace of mind to this space.
Blockchain hurdles
Whether blockchain and crypto can move beyond its hype is truly in the future yet, hopes are high. Nevertheless, the online space must ante up in general in terms of security, whether we talk about finances or the handling of personal data. Today, regardless of trying to offer greater security, the crypto world is still loud of investment scams and compromised funds. Therefore, distributed ledger technology-based solutions still need to live up to their potential.
“In my opinion, one of the most crucial hurdles today is security. With several million stolen each day from crypto wallets, it is a very real barrier for new investors to join the market and existing players to increase their investment exposure. If we can make investing in crypto more secure, potential new market participants will be less wary of joining in,” Mr Merre weighs in on the troubles the distributed ledger technology-based solutions face.
“If we can make investing in crypto more secure, potential new market participants will be less wary of joining in.”
NGRAVE CEO Ruben Merre
“Another scalability hurdle is the off-chain to on-chain translation. We also know this subject as ‘oracles’. Ultimately, blockchain often translates off-chain events to an online version,” Mr Merre adds. “For example, if you are insured against earthquakes and the smart contract of your insurance determines that as soon as there is a quake of six on the Richter scale you automatically get money on your account. In such a case, where does the consensus come from that actually defines what six on the scale of Richter means? Oracles, or dedicated offline parties oriented towards reaching a consensus on such rules, play an important role. As one can imagine, there is significant complexity in doing this right,” the CEO explains.
At the same time, blockchain evangelists, enthusiasts and experts are all concerned about scalability, i.e. the more people use a blockchain-based system and the more transactions they initiate, the longer the execution of the transaction would take. “This is a scalability challenge, yet many players are having a look at it as we speak. Then there is cross-chain compatibility/interoperability: How do you make two different blockchain infrastructures interact? Another point is the energy consumed by the network to reach consensus / to mine blocks. Here as well, solutions are investigated including Proof of Stake, Proof of Ownership, etc. moving away somewhat from the traditional energy-heavy proof of work consensus algorithm(s). Overall maturity on the developer side is another facet. We are still in the early days of this technology, which also means that we still have to develop a lot of code to make specific applications work. All of this needs to grow, evolve, mature, in order to make it easier and faster to scale. Finally, standardisation is one of the aspects that would likely benefit the overall crypto space greatly,” Mr Merre says.
Eyes on Malta
NGRAVE aspires to offer a breakthrough in cryptosecurity, by enabling users to do every single step of the user journey without ever exposing the private keys. The company says that their solution has been developed in close collaboration with the end user to ensure seamless ease of use.
NGRAVE has recently entered the second phase of their product development and expects to have a fully-functional version soon. “We will then perfect that version up to the very details and make it ready for industrialisation. People will be able to pre-order starting in September 2019. Expanding towards Malta is something that would make the most sense for 2020,” Mr Merre tells BM about their plans.
After stating the obvious attraction points of Malta — the breathtaking culture, beaches and weather — Mr Merre looks deeper into the ecosystem of the island nation, underscoring the supportive and innovative attitude of the tech and blockchain community in here.
“Malta is looking at crypto with a long-term perspective, and therefore set up three major regulatory bills last October to attract more cryptocurrency companies. This by itself shows that Malta is pioneering important frameworks to further foster blockchain adoption,” Mr Merre says.
He backs up his view with companies such as Binance, Bitbay, OKex having set up a base in Malta. He also takes time to praise the Malta Blockchain & AI Summit for its support. “In short, Malta is an ideal tech and entrepreneurial hub and we are committed to being a part of and developing the ecosystem on this small, but a powerhouse of an island,” the CEO concludes.