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How Does Key Sharding Protect Your Assets?

| January 22, 2024

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Within the world of cryptocurrency and blockchain technology, security stands as a top priority. Private keys, serving as the gateway to digital assets, are widely regarded as highly sensitive information. The adoption of sharding private keys has emerged as a prevalent practice, aiming to provide security and mitigate the risks linked to a single point of failure.

Definition of Key Sharding 

Key sharding, also known as Shamir’s Secret Sharing, is a method in which a private crypto key is divided into distinct pieces or shards. Each shard alone is ineffective unless enough shards are combined to reconstruct the original key. For instance, if there are 5 shards and only 3 are required for access, the holders of those 3 shards can collaborate to gain access. This process is deeply rooted in cryptographic principles, fostering more decentralized risk in the emerging economy. Secret sharing of this kind finds application in scenarios like custody-free clearing houses or recovery mechanisms where no single entity possesses the complete key.

To gain access to the crypto assets linked to a private key share, a designated number of shares must be collectively utilizing a specified algorithm or protocol. This approach has emerged as a notable technique in the crypto custody sector, offering substantial benefits in terms of data storage, performance optimization, and security enhancement. 

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The adoption of key sharding by the blockchain community was inspired by the concept of database sharding. Multi-party computation (MPC) leverages key sharding to deliver top-tier security to institutional clients, mandating the validation of a transaction for signing with M out of N (e.g., 3 out of 5 key shares). 

Importance of Asset Protection

Crypto investors holding digital assets in their crypto wallet often opt for a level of asset protection in order to mitigate third-party risk.  However, the safeguard offered by these advantages is not absolute. In cases where a cryptocurrency owner is involved in litigation or bankruptcy, a court may compel the disclosure of all assets, including any cryptocurrency holdings.

The importance of asset protection solutions remains significant in the crypto-industry. As interest in this asset class grows, individuals with substantial cryptocurrency holdings should ensure the protection of their wealth. Similar to traditional financial assets like cash, bonds, or publicly traded securities, cryptocurrencies can benefit from protection measures such as asset protection entities.

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Overview of Key Sharding as a Security Measure

The sharding process involves the fragmentation of a single private key into multiple pieces, commonly known as “shards.” Individually, each shard lacks the ability to access the corresponding wallet or digital assets. However, when these shards are combined, they can reconstruct the original private key. This methodology introduces an additional layer of security by dispersing control over the private key.

A primary challenge that has surfaced in this practice is security. Despite the isolation of each shard, exclusively handling its designated data, there exists a security apprehension related to shard corruption. This involves a scenario where one shard infiltrates another, leading to potential information or data loss.

Visualizing each shard as an independent blockchain network with authenticated users and data, there is a vulnerability to hacking or cyber attacks that could compromise a shard. In such a scenario, an attacker might manipulate the shard, introducing false transactions or malicious programs.

Concept of Sharding in Key Management

When it comes to securing the private keys controlling crypto assets, wallets with key sharding capabilities provide robust protection against potential security breaches for holders.

Instead of creating a master private key and storing it on a device susceptible to compromise, wallets distribute key shards among the devices of participating parties, such as you (the client), your solicitor, and Liminal.

Utilizing another secure computation protocol called zero-knowledge proof, which verifies information between parties without disclosing the information itself, a key shard can demonstrate its authority to co-sign a transaction.

As the transaction-executing key is a collectively generated value, a complete key never exists in a singular form or resides on any single device. This effectively makes key theft attacks impossible and safeguards against internal fraud and collusion, preventing any employee or group of employees from misusing the key.

How Key Sharding Differs from Traditional Key Management 

In their quest for a solution, innovative blockchain developers draw inspiration from contemporary database solutions. The practice of sharding, commonly employed in the database storage industry, involves dividing the database’s data body into interconnected layers or shards. This process has become an industry standard. This approach enhances access speed to stored information by facilitating a more direct route for queries, as opposed to traversing the entire database bit by bit.

Applying this concept to blockchain solutions, developers partition the public ledger into shards distributed across multiple nodes in the network as well as private keys. Individuals seeking access to a specific portion of the ledger can efficiently do so by navigating a selected path of nodes to locate the correct node with the relevant information.

For instance: In sharded blockchains, assembling and examining the entire ledger is made possible through key sharding or Shamir’s Secret Sharing. Key sharding involves distributing the blockchain data and the respective access keys for each dataset across the network’s nodes. When a user on one node aims to access all the data, they need to connect with other users on different nodes who have access to the remaining shards of data. In a sharded blockchain, only a few distinct keys, such as 3 or 4, are required for complete access, even in networks with thousands of keys.

Liminal’s institutional wallets, comprising both cold storage and hot wallet solutions, operate on multisig and multi-party computation technology. This ensures that complete access to the private key is never held by a single entity or individual. Key shares belonging to our clients are securely stored in air-gapped devices strategically distributed across various geographical regions.

Benefits of Key Sharding

Here are the major benefits of key sharding:

Distributed Trust

In the event of a breach or compromise of a shard, the attacker would only gain access to a portion of the data, thereby minimizing the impact on the overall system. This distributed approach adds an additional layer of protection against single points of failure and malicious attacks.

Enhanced Performance

Key sharding empowers the system to efficiently handle a substantial volume of transactions without compromising performance. Through the utilization of parallel processing and optimized resource management, key sharding ensures that the cryptocurrency network can scale effectively to meet the demands of a growing user base.

Increased Scalability

Key sharding facilitates horizontal scalability by incorporating additional shards to accommodate heightened transactional volume. This scalability feature allows the cryptocurrency network to expand and manage larger capacities without sacrificing performance or efficiency.

Fault Tolerance

Key sharding incorporates built-in fault tolerance capabilities. In the event of a shard or storage node becoming unavailable or experiencing a failure, the remaining shards can continue to operate, ensuring uninterrupted service. This fault-tolerant design enhances the overall resilience of the cryptocurrency network, thereby reducing the risk of data loss or service disruption.

Implementing Key Sharding

Create Dependencies:

To begin, import the required libraries and generate the encryption key. It’s essential to note that the encryption key should never be hardcoded and must be maintained with the utmost security.

Establish a Wallet and Derive Private Key:

Following that, establish an Ethereum wallet and derive a private key from it. This step can be adapted for any blockchain relying on private keys.

Encrypt the Private Key:

Utilize `libsodium-wrappers` to encrypt the private key using the provided encryption key. Ensure that the sodium library has been initialized.

Shard the Encrypted Private Key:

Proceed to shard the encrypted private key into multiple pieces. In the case of MPC wallets, three shards are created, but you have the flexibility to adjust this number as needed.

Implement Enhanced Security Measures:

For an additional layer of security, consider applying supplementary encryption layers to each shard. For instance, you may opt for different encryption algorithms or store shards in physically separate locations.

Conclusion

Here, we discussed the practice of sharding private keys to enhance security in blockchain and cryptocurrency applications. The process involves breaking a single private key into multiple shards and implementing additional encryption layers, thereby significantly reducing the associated risks of private key management.

However, it’s essential to recognize that with heightened security comes increased responsibility. Safeguarding your private key shards is paramount, as the loss of access to them could lead to the permanent forfeiture of digital assets. Always adhere to best practices and explore additional security measures to effectively protect your crypto assets.

Keep in mind that this guide serves as a foundational resource for sharding private keys. Feel free to modify and expand upon these concepts to tailor them to your specific security requirements.

 

FAQ

What is key sharding?

Key sharding encompasses the distribution of private keys and transaction data across numerous shards. Each shard is tasked with managing and processing a specific subset of the total data. The objective of key sharding is to enhance system efficiency by breaking down data into smaller, more manageable pieces, thereby distributing the computational workload. This approach ensures that no single entity retains absolute control over the complete key.

How does key sharding enhance security?

Key sharding strives to improve system efficiency by dividing the data into smaller, more manageable fragments. This approach distributes the computational workload, preventing any single entity from having absolute control over the entire key.

How are key shards distributed or managed?

The logical shards are dispersed among distinct database nodes known as physical shards. Each shard is capable of accommodating multiple logical shards. Nevertheless, the data collectively housed within all the shards represents a complete logical dataset. Database shards exemplify a shared-nothing architecture.

Can you provide an example of how key sharding works in practice?

After the column undergoes the hash function, hash values are produced according to the shard ID. Columns exhibiting comparable hash values are then stored within the same shard.

What happens if one of the key shards is lost or compromised?

If one of the keys is lost, you can use the remaining keys to unlock the wallet. For instance, if the device holding the keys is lost, stolen, or damaged. Losing a key signifies that the owner risks relinquishing control over their blockchain account, associated identity, and assets.

Is key sharding only applicable to encryption keys?

Yes, the concept of key sharding is applicable to encryption keys.

How does key sharding protect against insider threats?

Central to the management and security of crypto assets are private keys. A private key is a distinctive alphanumeric code that provides users with access to their digital assets. To bolster security further, a private key can be fragmented into multiple pieces, known as key shares or key shards.

Are there any drawbacks or challenges associated with sharding?

Although sharding decreases the workload on individual nodes, it introduces increased complexity to the database and its applications. The partitioning of the network with individual validators for nodes reintroduces the single-point-of-failure issue, diminishing decentralization.

Can key sharding be used in combination with other security measures?

Utilizing key sharding, multi-party computation (MPC) ensures top-tier security for institutional clients, necessitating the validation of a transaction for signing with M out of N (e.g., 3 out of 5) key shares. 

How scalable is key sharding for large-scale systems?

Sharding stands out as a highly practical approach for achieving scalability in a blockchain system, enabling parallel computation, storage, and processing. The system’s capacity and throughput may exhibit a linear relationship with the number of shards or participating nodes.

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