Is Unido and MPC the answer to FTX and Centralized Risk?
The FTX incident marked the climax of a year in which highly leveraged organizations crumbled under their own excessive ambition. FTX and similar entities constructed a precarious structure that took advantage of the very individuals who had entrusted them with the control of their cryptocurrencies. Nevertheless, through self-education and a more profound comprehension of blockchain concepts, one can ensure the security of their assets while still engaging in trading and accumulation activities.
Bitcoin’s Origin and Ethos
Blockchain technology made its debut in 2009 with the launch of the Bitcoin network by its anonymous creator, Satoshi Nakamoto. This innovative technology gave users the ability to manage their funds over a decentralized network, offering them control over their money for the first time. However, as Bitcoin's popularity and value have grown over time, the average investor may not fully understand the significance of self-custody. The private key control provided by blockchain networks is a monumental advancement, and users can fully utilize this 21st century power with a better understanding of the technology.
Centralized Exchanges and Their Counterparty Risks
In recent years, the downsides of centralized exchanges have received significant attention in the media due to numerous failures in the cryptocurrency space. When users entrust their private keys to another entity, it can lead to significant risk and limited options for recovery if that entity acts maliciously.
Over the past 18 months, investors in cryptocurrency have lost access to their funds through five major centralized entities, including:
- Celsius Network: This platform allowed users to transfer ownership of their coins in exchange for a high return of up to 17% APR, but the company understated the risks involved in the risky investments it made. When the bear market hit, the company collapsed and locked users out from accessing their funds. This situation is just one of many that could take years to resolve.
- Three Arrows Capital (3AC): This hedge fund managed over $10 billion in assets, but it is another prime example of the counterparty risk involved in allowing others to handle your funds.
- Voyager Digital: A cryptocurrency brokerage service that paused customer withdrawals in 2022, citing issues with the bankruptcy of 3AC and a loan they received from the company.
- FTX and FTX.US: These entities caused significant harm to cryptocurrency investors during the bear market, with over $10 billion in user assets seemingly gone missing and the story still unfolding.
- BlockFi: BlockFi was an exchange that took custody of user assets and when FTX collapsed, it was revealed that BlockFi was also highly leveraged. As a result, the company disabled withdrawals and filed for bankruptcy on November 22, 2022.
These events highlight the importance of understanding the counterparty risks involved in centralized exchanges and considering alternative solutions such as self-custody, where users secure their cryptocurrency without relying on a third-party entity (like an exchange).
Self-custody it is traditionally provided by hardware wallets or software wallets:
Hardware Wallets and their Limitations
Hardware wallets are a preferable option compared to centralized exchanges, but they come with their own set of challenges. People have long experience in securing physical goods, but hardware wallets bridge the digital and physical world. Unfortunately, some cryptocurrency owners have lost access to their funds due to the misplacement or theft of their private keys after writing them down. Others have suffered the unfortunate combination of losing both their seed-phrase and hardware device, resulting in permanent loss of funds.
Software Wallets: Benefits and Risks
Software wallets, as the name suggests, are software applications that can be run on a device. One major disadvantage of software wallets is similar to centralized exchanges in that users may not retain control over their private keys. There is a widespread misunderstanding that all software wallets support self-custody, but this is not the case.
While some software wallets do offer users control over their private keys, they are not immune to risks. Software wallets are vulnerable to attacks from malicious actors seeking to steal users' cryptocurrency.
Multi-party computation – a better solution for self-custody
Multi-party computation (MPC) offers a potential solution to the challenges posed by both hardware and software wallets. MPC is a cryptographic technique that enables multiple parties to perform computations on data while keeping the data private and secure. In the context of crypto wallets, MPC allows users to store their private keys across multiple devices in a decentralized manner, reducing the risk of loss or theft. Unlike hardware wallets, MPC does not rely on a single physical device, reducing the risk of physical loss or damage. And unlike software wallets, MPC does not require users to trust a single entity with their private keys, as the computation is performed collectively by multiple parties. As such, MPC represents a more secure and user-friendly alternative to traditional hardware and software wallets, offering a new standard in the secure storage and management of cryptocurrency assets.
Accessible MPC for All
Until now, Multi-Party Computation (MPC) wallets were only accessible through high-end providers such as Fireblocks, catering to the needs of larger businesses and institutions. However, the self-custody needs of small businesses and individual cryptocurrency enthusiasts had remained unfulfilled. Unido EP is a new platform that offers full MPC and self-custody for all. This downloadable, free-to-access platform enables users to easily set up a multi-user wallet for any major blockchain and manage, buy and exchange cryptocurrencies within the app, thus avoiding the centralised counterparty risk.
Unido and the UDO Token
Unido was introduced in mid-2022 and has been met with impressive success, as its user base continues to increase by about 400% every month. The UDO token, which serves as a utility within the platform, appears to be ready for widespread use. With paid Unido plans starting in early 2023, the token will be required to utilize the platform. With a relatively modest market capitalization of $500,000 as of January 2023, UDO is still much smaller compared to other established players in the market, such as Fireblocks ($8 billion) and Bitgo ($1.2 billion). To learn more about the UDO market capitalization and growth potential, please see our October article.
The Unido Enterprise Platform:
- World Class Security
- Multi-user, Multi-signature
- Analytics and Reporting
- Interoperability and Multichain
- Decentralized Self-Custody
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