Private keys, HSMs, and risk management
Private keys are an essential component of cryptocurrency ownership and management. They are the mechanism by which users can prove ownership of their digital assets and execute transactions on the blockchain. As such, the security and protection of private keys are paramount for custodians and other entities that hold large amounts of cryptocurrency on behalf of clients.
One approach to securing private keys is to store them on Hardware Security Modules (HSMs). HSMs are physical devices that are designed to protect and manage digital keys and other sensitive information. HSMs are considered to be a highly secure method of storing private keys as they are isolated from the internet and other external systems. They are often tamper-evident, meaning that any attempts to physically access or modify the device will be detected.
Despite the robust security provided by HSMs, there is still a risk of losing private keys if the device is damaged, lost, or stolen. To mitigate this risk, it is best practice for custodians to back up their private keys stored on HSMs. By creating a backup of private keys, custodians can ensure that they can recover access to the keys and the funds they protect in the event of a catastrophic event.
However, backing up private keys introduces its own set of risks. If the backup is not stored securely or is accessible to unauthorised parties, it can be compromised, and the funds it protects can be lost or stolen. This is why it is important for custodians to offload the risk of key backup to a trusted third party.
Coincover is a service provider that offers a non-custodial disaster recovery solution for cryptocurrency custodians and wallet technology providers. Coincover's service involves creating a secure backup of private keys, which is then encrypted and stored in multiple geographically distributed locations. The encrypted backups are accessed and managed by Coincover, which has implemented rigorous security measures to ensure that the backups are not compromised or accessed by unauthorised parties.
Coincover's disaster recovery service provides several benefits to custodians.
Peace of mind
Coincover provides peace of mind by ensuring that custodians have a reliable and secure backup of their private keys in the event of a catastrophic event. This allows custodians to focus on their core business operations without worrying about the risk of key loss.
Coincover’s service is scalable, allowing custodians to easily increase their backup capacity as their business grows. This means that custodians can rely on Coincover's service to support their business growth without having to invest in additional backup infrastructure or resources.
Coincover’s service is cost-effective. By offloading the risk of key backup to a trusted third party, custodians can avoid the cost of maintaining their own backup infrastructure and resources. This allows custodians to focus on their core business operations and reduce their overall operational costs.
Coincover ensures custodians can stay ahead of incoming regulation. Regulators are increasingly interested in how crypto companies will protect the interests of their customers. Coincover's disaster recovery solution lets you meet concerns around digital asset safety head on.
Coincover’s disaster recovery service is entirely non-custodial. Our unique technology removes sole access to assets for any single entity. Our access-controlled offline vaults act as a dual key safety deposit box to secure as well as streamline recovery if the time comes.
To summarise, backing up private keys stored on HSMs is an essential risk management practice for custodians. However, custodians must ensure that their backups are secure and not accessible to unauthorised parties. Coincover's disaster recovery service offers a reliable and secure solution for custodians to offload the risk of key backup, providing peace of mind, scalability, cost-effectiveness, and regulatory compliance through a non-custodial solution.
For more information about how to manage risk associated with private keys, contact us today.