The “Non-custodian Investment Vault” Technology implemented in the Liqwith DApps makes an investor journey in a Blockchain-powered application as smooth as possible

Jul 22, 2022News

The custodian Paradigm:

Here at Liqwith, we are building the next generation of financial infrastructure for managing an organization’s equity via blockchain technology. By leveraging the Ethereum Blockchain we can replace traditional trust functions like managing an equity portfolio or verifying an equity transaction. Traditionally these are functions that banks and notaries are performing. The use of the Ethereum blockchain leads to exponential time and money savings on typical equity transactions. However, this comes at a cost. Instead of having a bank or a notary acting as a custodian, the investor himself is now the guardian of his assets. This is new and daunting for an investor, but it is also the only way to ensure that his assets are 100% safe. To eliminate the fear of this new paradigm, Liqwith created a “best of both worlds” solution called the Non-custodian Investment Vault technology.

Executive summary:

Using the Non-custodian Investment Vault technology of Liqwith will allow investors to maintain absolute and sole control over their private keys. They can interact with smart contracts, without the risk of losing access to their wallet if they misplace the device containing the only copy of their private key. They will enjoy a “cloud-like” experience, as these investors will be able to access the same wallet (private key) from different devices, using a familiar email and password login mechanism from their existing browsers. There will be no need to install any third-party applications like MetaMask or Ledger Live. Current solutions in the Ethereum ecosystem introduce friction into the onboarding process of Investors by placing the burden of creating a wallet on the investors, requiring them to install a third-party solution like MetaMask or Ledger before they can invest in an organization powered by the Liqwith Decentralized Application (DApp). Liqwith aims to eliminate that friction by offering a so-called Non-custodian Investment Vault or “Light Wallet” build into the DApp itself. If users are tech-savvy enough, it is still possible to use a third-party solution like Ledger or MetaMask. With the Light Wallet integrated, Investors can manage their private key inside their existing browser, letting them sign transactions, claim dividends, and participate in the voting process of a particular Organization. At the same time, an investor remains the sole owner of his private keys, as the Non-custodian Investment Vault architecture makes sure nobody can access the investor’s unencrypted private key — besides the investor itself.

As a bonus, using this technology eliminates the regulatory requirements as described in the latest AMLD5 directive regarding wallet providers.

The investor journey:

The average investor won’t and shouldn’t care about blockchain. To promote the mainstream adoption of the Liqwith Solution among large groups of investors we made sure that we abstracted away from the investor as much as we could without compromising security. However, it also meant that this abstraction could not extend to the management of their private keys.

Private key management is one of (if not) the biggest challenge for investors in an “Ethereum blockchain-powered” investment platform. While custodial solutions on Ethereum Blockchain DApps can offer users an experience which feels very familiar to, for example, Crowdfunding platforms, we believe they are a step in the wrong direction, as “Safe vaults” are not safe if they hinge on a centralized service having access to the private keys of an investor. Alternatively, placing the burden totally on the shoulders of investors by requiring them to manage their private keys on their own is too demanding of investors who are not necessarily tech-savvy.

By using the Non-custodian Investment Vault technology of Liqwith, investors enjoy a familiar experience (email and password login flow), without requiring them to install anything, while making sure they are the only ones able to access their vaults containing their digital assets via their private key. Besides, accessing the same private key on multiple devices is as simple as typing in their credentials on a new device.

How does this Non-custodian Investment Vault technology work?

Liqwith lets investors create an encryption key in their browser as soon as they make an account on a Liqwith DApp. Effectively, an Ethereum blockchain wallet is created and encrypted with the aforementioned encryption key. The wallet is then stored in a Liqwith DApp as a JSON Object encrypted with a password. All cryptographic keys are generated and managed by the investor in his browser, and all encryption is done locally on his device. Liqwith DApps are never in the position of learning an investor’s cryptographic key. When the already encrypted data travels between the investor’s device and a Liqwith DApp, it is encrypted and authenticated by TLS. A Backup Recovery Phrase (Mnemonic Seed) is derived to offer investors a means of resetting their password in case they forget it.

Note: We cannot recover users’ data if they forget AND their Password AND lose their Backup Recovery Phrase!

Key take-aways:

We strive to bring the best security architectures to investors who are not themselves security experts. Not everyone wishes to become a security expert, but an investor is entitled to security whether or not he seeks to understand how it works. He needs to be sure that his assets are safe and well protected. Concealing the necessary complexity of the design from investors when they just want to use a Liqwith DApp or manage their crypto funds is all well and good, but we should never conceal the security design from security experts, system and security administrators, or curious users. Security by transparency is something we value and live by.

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