The Rapidly Increasing Value of Digital Assets Demands Better Security.

The Rapidly Increasing Value of Digital Assets Demands Better Security.

Digital Asset protection sorely needs an upgrade.

There was a time when the most important things people stored in the cloud were photographs and resumes. Now digital assets include bank account credentials, cryptocurrency, car keys, and house keys. The value of these assets has dramatically increased, so their protection needs to be dramatically upgraded too, commensurate with what is being protected.

In a general sense, a digital asset is a digitally stored, intangible object that is owned (by someone or something) and could have value.

However, one could argue that it is no longer quite right to describe a digital asset in this way, and that changes in the world over the past few decades warrant an updated definition. Ten years ago, a digital asset was something very different: what once represented images and documents now potentially represents entire financial systems, information oceans, and access to the control of anything and everything.

In other words, cryptocurrency and digitization have altered the notion of a digital asset — from what once represented simple information on a machine into something that represents real-world identities, big data, and financial objects.

Image showing the increasing value of digital assets.

The increasing value of digital assets.

As a thought experiment, consider the evolution of cloud sharing. Early iterations of cloud sharing were always intended for people to store items of relatively personal value: photos, documents, videos, animations, audio, or other multimedia content. It wasn't until mass cloud sharing was possible in the way late implementations like Dropbox established that the storage of digital assets on the cloud began erupting in popularity.

Security Cost and Risk

Protecting assets requires a trade off between the value of the asset, the cost of security, the overall reduction in risk, and of course convenience. People choose to put photos in cloud storage systems versus bank vaults. However, as the value of assets has increased, appropriate security has not kept pace.

Car keys on a phone are already in deployment for many cars. The cryptographic keys giving smartphones access to cars, homes and other precious assets are of immense value. Yet the mechanisms to secure them have not greatly changed.

Cryptocurrency and Blockchain

Since the invention of cryptocurrency, a broader vector of digital assets has taken the spotlight: the subclass of digital financial instruments that can be used as a store of value or a means of exchange. So far, these assets often have been stored in what can only be described as risky mediums, e.g., online accounts and USB devices. The private keys behind these assets are essentially left to individuals to protect in a scheme of their own choice.

"The Winklevosses came up with an elaborate system to store and secure their private keys. They cut up printouts of their private keys into pieces and then distributed them in envelopes to safe deposit boxes around the country, so if one envelope were stolen the thief would not have the entire key."

"How the Winklevoss Twins Found Vindication in a Bitcoin Fortune" by Nathaniel Popper, New York Times, December 19, 2017

Meanwhile, billions of dollars of blockchain-based cryptocurrency have been lost to hacks or other unfortunate occurrences.

Image of WSJ article about lost crypto.

Some crypto is simply lost.

20% of all Bitcoin is lost forever. That's many billions of dollars of value, and in fact, in 2018 alone, over $1.1B was stolen.

What is the next phase in digital asset protection?

The security of digital assets is a huge concern. In accordance with this abrupt spike in the valuation of digital assets, the security measures used to secure these assets need to be improved. Right now, there are just a few options for securing cryptocurrency and other digital assets, and all of them possess some single point of failure for the user.

Therefore, how custody of these emerging classes of digital assets is handled must be considered. Threats to the security of cryptocurrency storage need to be analyzed, and the correct frameworks for digital custody need to be designed accordingly. Digital custody needs to be vigorously explored, improved, and researched to robustly respond to this rapid demand for stronger security.

In future articles, we will look at digital custody and how individuals are using Vault12 to deal with the risks and challenges of protecting their cryptocurrency and other digital assets.

Thanks to Blake Commagere.

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