Rethinking asset ownership through a user control and experience lens
Custody providers require you to be rich and trust big companies - that's silly. Here is how we can change it.
Since the dawn of time, humans have felt the need to safe guard their most valuable things. Pharaos enslaved thousands to build mausoleums for all the assets they thought they’d need in the afterlife. The first emperor of China, Qin Shi Huang, constructed a necropolis of almost 100 square kilometers of underground tombs to contain representations of an army to guard the emperor in the next life. More recently, as liquidity was desired already in this life, assets have been stored in vaults and treasure chests.
The usage of these assets changed dramatically once digital representations of them became possible. We had to rely on asset managers to validate and approve each transaction à la banks, card issuers, payments providers etc.. At least until the advent of trustless, cryptographically secured digital assets.
As the service providers were cut out of the game the responsibility now shifted to the individual. In the last 12 years users have been forced to store and manage their private keys themselves, or delegate that storage to the web3 equivalent of asset custodians such as Coinbase or Fireblocks. Not only does this undo the trust assumptions and basic premise of permissionless systems but it also compromises on the quality and ease of user experiences. The new generation of service providers, custodians are very costly and not available to an average asset holder.
Technically, the predominant way to store and manage digital assets can be organized along a spectrum of hardware- and software-centric solutions.
Most institutional grade custodians such as Coinbase, Anchorage or Finoa use a multi layered stack of hardware (HSMs) and software solutions to store assets and manage keys. Rather retail focused approaches like Ledger, Trezor or Foundation separate your key storage from an online machine, and provide a physical barrier for entry. The physical format of a USB-like key with a small display has it’s limitations when it comes to usability.
Software-centric solutions such as Fireblocks, Metamask or Argent interact with applications directly and usage of the private key is unlocked on the device that is connected to the internet. The direct connection makes for easier use, but also a larger attack surface for hackers. Software-centric asset storage solutions also include smart contract wallets and multi-sigs. A problem that applies to both hardware- and software-centric solutions is that they are highly blockchain-specific, as the account abstraction and signature schemes can vary significantly between different networks.
In summary, the trade-offs one has to make when assessing digital asset storage solutions today include:
Usability vs. security
Resilience vs. security
3rd party control vs. self control (not your keys, not your coins)
Cost vs. own responsibility
Introducing: Entropy - a network of key shards
We proudly present our investment in Entropy - the next step in the evolution of asset storage and usage. Entropy recently announced a $25M seed raise led by a16z, with participation by Dragonfly, Ethereal, Variant, Coinbase ventures, Robot ventures and Komorebi.
Entropy is building a truly flexible, decentralized asset storage and management network for everyday users. They are founded on deep practical cryptography knowledge, a strong focus on user-friendliness and ✨immaculate vibes✨. Technically, they do this by leveraging a t-of-t threshold signature scheme where the shards are distributed across a decentralized network. It will be built as a separate chain, with a Turing-complete system for smart contracts. This allows the owner of assets to programmatically define how specific shards can use the assets on the L1.
The vision and technical architecture unlocks new ways we can interact with crypto-assets. A small selection of use cases that could be built using Entropy in a fully trustless setting are:
Multi-factor authentication by delegating shards to other devices
Social recovery by delegating a shard with recovery permissions to a friend
Separation of staking reward rights from voting rights
Entropy is re-thinking how wallets, keys and permissions in decentralized networks are designed and we are thrilled to support their phenomenal team on the journey. You can find more info on the project and it’s trans, anarchist founder Tux here.
PS. Entropy is hiring