We’re now familiar with the Odsy tech stack. The network combines multi-chain compatibility, Turing-complete programmability, and MPC-based security to create a single, decentralized access control layer for all of crypto and web3. But what can we do with that?
A lot. The dWallets that are deployable on the network have many real-world use cases which we will be taking a look at. The first of these is Decentralized Digital Asset Custody.
Why Custody?
One of the first things we hear when joining crypto is the saying “not your keys, not your assets.” It’s one of the main concepts: you, and only you, should hold your private keys because it’s all that’s keeping anyone else from having free access to your crypto assets.
As a result, custody is almost a taboo topic because it’s understood to go directly against the ethos of decentralization. However, this comes from a binary understanding of access control that’s been predominant in crypto. Custody itself is not a problem, it’s the fact that so far we can’t have it in a decentralized way — at least not efficiently.
Let’s think about what custody means and why anybody would want that, especially in a decentralized world where value can be shared online.
Cus·to·dy (/ˈkəstədē/). noun:
the protective care or guardianship of someone or something.
(Oxford English Dictionary 2022).
There are countless stories of people losing their private keys and losing a fortune in crypto assets because of a lack of guardianship. This is part of the reason why, before crypto, centralized services like banks have thrived in the first place.
The responsibility of holding value is a serious one that can often lead to catastrophic results when left to a single individual. For example:
- Imagine losing your hardware wallet to then find out that the ink you used to write down your seed phrase on a piece of paper has faded completely.
- Imagine leaving behind digital assets as inheritance but suffering from an untimely death where you couldn’t share the access to your offspring in time.
- Imagine being the victim of a crime where no third-party can determine if your decision to transfer your digital assets is consensual or not.
Custody is a need that won’t be decoupled from the act of holding valuable assets.
What Web3 Custody Looks Like Now
Currently, Web3 users have a binary choice. They can manage their own private key themselves (self-custody) and take the full burden of risk and complex operational security. The alternative is to share their private keys or assets with a centralized third party who promises to protect and manage their assets for them.
This forms the basis of the custodial wallets that are used in centralized exchanges and others who are looking to provide this much needed custody service in the space. But as we already know, when the only thing needed to access all your digital assets is a private key — and that private key is stored in one or more proprietary servers somewhere — the risks of fraud, hacks, mismanagement, or system failures are non-trivial.
What Web3 Custody Could Look Like
Proper custody can exist, it's just that it cannot depend on this binary mechanism. We need a secure decentralized mechanism in order to implement custody that avoids these risks. This would open the doors for new ways to think about custody that don't imply trusting a third party or a single point of failure.
Going back to the previous examples:
- Imagine setting up a wallet contract where a separate group of individuals can help you restore access to your account in the event of lost access.
- Imagine setting up a wallet contract that sets a timer on your wallet before it distributes funds in the future directly to your inheritors’ wallets.
- Imagine setting up a wallet contract where the transfer of funds that are higher than a certain amount requires input from an oracle service designed to gauge your safety.
It really helps connect crypto to the real world today, right? Even improve it in meaningful ways.
Decentralized Digital Asset Custody with Odsy
This is where Odsy’s decentralized application of MPC comes into play for this important use case.
Let’s recap: Signing a transaction with a dWallet requires the approval of both the user and a predetermined amount of validators (t-out-of-n) on the network. The validators decide whether to sign the transaction according to the logic that is programmed into a wallet contract.
In this scenario there is no single person who’s in control of the digital assets that are in the wallet, rather an entire network. This combination of MPC and a robust consensus mechanism provides a new standard for the security of the digital assets in custody while eliminating the risks associated with trust and a single point of failure (hacks, mismanagement, malicious custody, or system failures).
This is custody done right.
Looking Forward
With the possibility of Decentralized Digital Asset Custody, many of the issues that currently hinder web3 adoption would be resolved. Custody is an important part of the existing financial system that needs to be implemented properly in web3 in order to build better real-world applications.
A decentralized approach to custody serves users who need customized ways to hold their assets and set conditions to safeguard them beyond the capabilities of cold storage. More importantly, it allows others to build both novel and existing solutions on top that can take decentralized custody as a given.
What do you think about this use case? Share your thoughts with us on Twitter. You can also find out more about Odsy and we’re building by reading the litepaper.