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Home Latest News Bitcoin News Why Institutional Bitcoin Accumulation Can Promote Long-Term Resilience

Why Institutional Bitcoin Accumulation Can Promote Long-Term Resilience

Institutional bitcoin HODLing may appear to be at odds with decentralization and increased inclusivity, but it may be a sign of improved digital asset security.

Bitcoin is in many ways bringing these possibilities into the spotlight, to the point that it has generated unprecedented worldwide acceptance. Distributed ledger technology has barely scratched the surface of its potential.

Furthermore, the expanding institutional embrace is a force to be reckoned with, and MicroStrategy’s acquisition is just one illustration of the rapid speed of acquisition.

CEO Michael Saylor has been a major advocate for corporate balance sheet increases and institutional acceptance, even persuading Tesla CEO Elon Musk to add over $1.5 billion in the foundational cryptocurrency to the company’s treasury.

While some bitcoin supporters may see this as undermining their belief in decentralization, increased institutional acceptance may actually strengthen bitcoin’s appeal and, over time, its durability. What the proponents of decentralization and inclusivity may overlook is bitcoin’s relatively steep learning curve, which is preventing their vision from becoming fully realized.

Institutional investors, surprisingly, may hold the key to unlocking its potential by promoting better asset safekeeping procedures, the present wallet structure’s Achilles’ heel.

THE STORAGE MYSTERY

Bitcoin’s reputation has long been tarnished by issues with digital asset safekeeping. According to some estimates, up to 3.7 million bitcoins out of the approximately 18.8 million currently mined are lost forever due to forgotten secret keys, equating to nearly a quarter of a billion dollars at today’s pricing.

This startling statistic underscores the full magnitude of the problem and just how easy it is to misplace a password, whether as a consequence of neglect, accidents, theft, or other causes.

Would institutional investors enter a market where the risk of total loss was so low that a single point of failure might jeopardize a whole multi-million or billion-dollar investment portfolio? Most likely not. They would, instead, expect sophisticated digital asset security that isn’t always generally available.

You don’t think, for example, that Michael Saylor is the sole owner of MicroStrategy’s wallet’s 24-word seed phrase.

Consider what would happen if he forgot the password in one fell swoop, compromising the entire company’s assets. This is not going to happen. The organization has most likely identified this obvious risk and implemented digital asset security mechanisms to hold private keys, limit access, and aid recovery efforts in the event of a worst-case scenario.

The very intricacy that lies at the heart of bitcoin’s design is far from a disadvantage; in fact, it is the basis of bitcoin’s resilient architecture. Despite this, many attempts to change this reality have focused on the exceedingly difficult storage issue.

In effect, eliminating human mistakes as a single point of failure is critical for averting more widespread permanent loss and ensuring bitcoin’s long-term viability.

REDUCED COMPLEXITY AS A FORM OF FUNCTIONAL RESILIENCE

Vaults are one of the various solutions offered by digital asset custodians to the storage conundrum, thereby providing an offline consensus method for accessing locked cryptocurrency.

Offline storage is convenient, but it has flaws, especially if your consensus process requires individuals to be physically there to open the “vault” and bring their coin back online from cold storage.

Having a physical presence available 24 hours a day, seven days a week creates obvious challenges. As a result, institutional investors that demand constant and quick access may be able to create their own functional “vault,” but it will be logistically difficult.

The multisignature (multisig) wallet is an alternative to physical custody. Each transaction in this wallet security architecture requires multiple signatures from various parties, known as cosigners, in order to be processed. When constructing an Electrum multisig wallet, for example, the number of cosigners and the number of cosigners who must sign transactions to process them must be chosen.

A wallet with four cosigners, for example, might need two cosigners to sign a spending transaction.

After that, each cosigner creates a new seed for each of the two seed kinds (Segwit or Legacy). It is the cosigner’s obligation to maintain the signature secure once it has been generated (and not share it with the other cosigners). Electrum generates a master public key (MPK) after confirming the seed, which should be shared with the wallet cosigners.

The wallet can be formed once all cosigners have all of the master public keys. When the service is finished, it will produce a wallet address, which will require cosigners’ assistance to perform any spending transactions from the wallet.

Specter Desktop, for example, allows users to identify hardware wallets like Trezor or Ledger S wallets as cosigners, requiring a quorum of the devices to sign and submit transactions. Nonetheless, some of the obstacles are comparable to those seen in vaults.

While the single point of failure problem of a single-signature wallet is addressed, exploitable coding flaws have occurred in the past. Signatures and permissions, as well as the previously mentioned availability factor, must be changed as teams change.

Even the concept of hardware security modules (HSMs) has been floated, but this only serves to return the discussion to the single point of failure. HSMs effectively encrypt and decrypt private keys for transactional purposes.

While they are efficient against theft, that doesn’t mean they can’t be hacked and used to deplete a wallet address. Their cost is even higher, placing them out of reach for the majority of bitcoin HODLers.

Multiparty computation is one of the potential solutions for mitigating these many variables (MPC). To avoid a single point of failure, MPC replaces a single private key with a procedure involving at least three endpoints that do not share all of the secret keys.

This allows transactions to be validated and signed using a distributed signature consensus mechanism. Apart from lowering the danger of theft and hacking by dispersing secret key storage, one of the most significant advantages is the ability to modify processes or endpoints without requiring parties’ approval via signature rights, as in the storage models stated above.

“MPC-powered crypto wallets don’t think a 24-word seed phrase is realistic for most humans and have embedded this innovation into their user experience,” says ZenGo CMO Elad Bleistein. This means that only you have access to your assets, but that they may be recovered if something goes wrong.”

THE KEY IS TO ALLEVIATE INSTITUTIONAL FEARS.

When looking at the history of investing in technology, it’s important to remember that institutional innovation inevitably filters down to the retail level. Institutional investors have the resources and funds to create and implement innovative solutions that will eventually become the gold standard for other institutions and individual investors.

This paradigm might also apply to the bitcoin markets, and MPC solutions could usher in a major shift in storage methods.

MPC solutions effectively eliminate the issue of a single point of failure. They may pave the way for internal storage solutions that welcome more widespread institutional engagement, given their growing track record and increased institutional interest.

Furthermore, it could be a godsend for individual HODLers looking for a more secure manner of securing their private keys.

Together, these parties and systems can retain the maximum quantity of bitcoin in circulation, contributing to the bitcoin cryptocurrency’s overall robustness and endurance. It’s impossible to predict how wallet key security and storage will evolve, but it’s difficult to argue against the advantages of more clear and accessible wallet key security and storage approaches.

Source: Bitcoin Magazine

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About Skyhigh.Vip  

Skyhigh.Vip is a global institutional investor with a vast interest in Arts / Construction / Education / Business Services / E-Sports and various other growth industries.  

Several of its popular portfolios include GO Chambers which is the world’s largest business chamber listing provider with over 30,000 active chambers as its members.  

Flexgigzz is the Asia leading marketplace for freelancers service and together with SOHO Learning Hub which is an online platform for short courses and both of them aims to be the number one provider in Asia. For growth industries such as E-Sport Authority which is dedicated to providing independent media coverage to all E-Sport News related from around the world and for the art world, there is Atelier Auction which is an investable art auctioneer and being in the art scene for decades.

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