Battling Key Custody Calamities and Catastrophes

Bryant Nielson | November 22, 2023

In the blockchain world, losing private keys is akin to torching your treasury. Without keys, users are locked out of their funds and control is lost. Myriad threats exist to key custody that require vigilant mitigation. We will survey key perils and prudent countermeasures for blockchain systems.

Among the primary key custody threats are storage-related compromises. Keys saved improperly in hot wallets or repositories risk theft through hacking. Weak permissions, auditing and encryption exacerbate vulnerabilities. While cold storage offers safer harbor, physical theft and loss of offline media also jeopardize access. Robust storage protocols on both fronts are mandatory.

Insufficient access controls also menace key custody. Overly broad internal access powers make insider misuse or social engineering attacks more likely. Granting external third-party custodial access concentrates risk and liability. Keys and signing powers should only be shared when absolutely necessary under strict contractual terms.

Poor key management practices also invite trouble. Failing to generate, backup and rotate keys properly makes it hard to recover from lost or compromised keys. Weak cryptographic hygiene like key reuse or poor random number generation also crack open backdoors. Adherence to crypto best practices is essential.

Basic human vulnerabilities like forgetfulness and carelessness often enable key disasters. Forgotten passphrases lock users out of hardware wallets permanently. Sending keys or seeds via email is an all too common foible. Losing track of which machine or paper holds keys dies a crypto death by a thousand cuts. Mandating robust operational habits prevents such self-inflicted cryptocalamities.

Of course, malicious external attackers perpetually seek to steal and exploit keys through phishing, social engineering, and hacking. Key-logging malware or seed-lifting viruses are crafty cyber risks. While formidable, these threats can be minimized by restricting internet access for key-handling systems and following cybersecurity best practices.

For centralized entities like exchanges, insider threats reign as one of the foremost concerns. Privileged technical staff with key access can go rogue and abscond with funds. Systems like multisig schemes that require multiple trusted parties provide checks and balances against insider misuse. Cyber insurance for exchanges also helps cover losses.

When all else fails, sound incident response and disaster recovery controls provide final protective layers for key custody. Quickly detecting key compromises allows changing locks by revoking and re-securing assets. Maintaining backups and redundant multi-location storage enables restoring access if some keys are lost or destroyed.

Robust key hygiene is foundational for individuals and institutions utilizing public blockchain infrastructure. As crypto asset values soar, the incentives for attackers only grow more lucrative. With vigilance and defense-in-depth measures across policies, people, processes and technologies, key custody calamities can be avoided. Healthy paranoia in safeguarding blockchain keys will reap long-term rewards.