Since time immemorial, centralized financial institutions have always been our go-to for procuring financial services, from performing simple withdrawals to fund storage and brokerage or performing investments. With the advent and increasing popularity of the use of blockchain technology within the last decade or so, however, a new form of performance for our day-to-day financial activities has emerged – decentralised platforms and applications (DApps). Indeed, the DApp industry saw an astounding 50% increase in unique active wallets (dUAWs) in 2022, up from an average of 1.58 million daily dUAWs in 2021 to 2.37 million in 2022 on average. Clearly, DApps are taking the world by storm, in part due to their ability to truly revolutionise the way we conceptualise the management and autonomy we have over the finanical resources at our disposal. But what exactly are decentralised platforms and how do they necessarily set themselves apart from a security standpoint from what we conventionally understand of the traditional financial ecosystem? To find out more, we first need to understand the key characteristics of a centralised financial institution.
Features of Centralised Institutions
It is rather intuitive for users to gravitate towards a centralised financial institution or platform purely on the grounds of familiarity. In particular, traditional financial institutions such as government-backed banks or investment services oftentimes carry with them the mandate of trust the public holds for the very institution. This is because the operations of institutions belonging to the realm of traditional finance (TradFi) are oftentimes shrouded in bureaucracy and red-tape that obscure the actual day-to-day workings and management of funds within these banks or exchange platforms. This is to say, a minimum standard of trust has to be placed into the hands of enigmatic individuals in positions of leadership that users barely know anything of. Yet this environment nevertheless cultivates sentiments of familiarity and ease of access, especially for users interested in dipping their toes into the waters of Web3. Centralised exchanges and wallets do not come with the cost of a significant learning curve for new users, and are therefore optically a lot less daunting or intimidating option for users.
Ownership of assets
Centralised platforms therefore also pose a challenge towards the ownership of user funds and access. For instance, a centralised exchange or wallet holds total control over the user’s own security phrases, private keys, and passwords. Since these platforms usually function in similar ways to a traditional stock exchange or brokerage otherwise would, they are operated via a third-party, or board of directorship, that maintains complete control and authority over user funds, wallet, and the exchange as a whole. The upside of this however, is that it is possible for users to have a way to recover passwords or private keys that they may themselves have accidentally lost or forgotten, as the centralised instituition holds this data within their information silos, alongside any other pieces of information procured from users during typical KYC (know your customer) screenings.
How then does a DApp differentiate itself from a centralised platform?
Primarily, a decentralised wallet like BitKeep, does not have a central authority. Where a centralised wallet, or custodial wallet, holds vital user information such as their private keys and passwords in their data banks, a decentralised wallet, or non-custodial wallet, does not hold such information. Instead, users are prompted to constantly back-up their private keys and mnemonic phrases to ensure the integrity of their funds. Since the DApp does not hold control or ownership over the user’s funds or assets, the prerogative lies wholly on the user to be in charge of securing their own funds and account. While this concept of direct ownership may be daunting to some, especially Web2 natives who have yet to be more familiar with Web3 and DApps in general, there are several key benefits to this iteration of direct ownership.
Benefits of Decentralised Ownership
For decentralised wallets such as BitKeep, transactions and information on user assets are recorded on the blockchain, which ensures that such information cannot be tampered with easily by malicious actors. Even “51%” attacks, which take place when a malicious user procures 51% of the network’s hash rate, are unlikely to take place especially for prominent cryptocurrencies like Bitcoin and Ethereum. The former, that relies upon a “proof-of-work” consensus algorithm, requires such immense hashing power, or computing power, to take over 51% of the network that the cost involved to obtain a hash rate of that scale is far too costly, and even then it would be incredibly easy for authorities to pinpoint their location simply due to the massive consumption of electricity required to carry out hash rates of that degree. The latter, which has recently transitioned to a “proof-of-stake” verification protocol, requires a malicious entity to stake more than an estimated 6.9 million ETH, or more than $9 billion, to even attempt an attack, making an attack far too costly with unpredictable returns. Additionally, the consensus mechanism would likely recognize such an attack quickly and immediately slash the staked ETH, costing the attacker an extraordinary amount of money in this failed attempt.
Since users are in total control of their funds or assets in the case of DApps such as BitKeep, they will be kept secure even in the event of institutional failure. We saw this happen in the case of centralised exchanges such as Celsius Network, Voyager Digital, and more recently, the collapse of FTX. While users had no part to play in the downfall of these institutions, their funds and assets still suffered total or significant loss when these centralised entities collapsed. The whole point of DApps on the other hand, is to provide users with privacy and self-custody in a transparent and permissionless way so that users may hold on to their own assets without needing to trust in an external party. While trusting in a centralised or even a government-backed entity may be second nature to many of us, we cannot take this for granted. In different parts of the world, especially in third-world countries or even first-world countries that are embroiled in governmental unrest and uncertainty, simply walking to a bank to withdraw one’s funds may be an unsurmountable challenge.
Why Choose BitKeep?
The unique comparative advantage held by DApps such as BitKeep is that the only real threat or risk to user funds is either a complete collapse or failure of the digital asset itself, such as Ethereum or Bitcoin, or a mismanagment of the user’s own private keys. In this regard, as long as the user takes the appropriate steps to secure their own private keys and exercise the necessary hygiene practices, such as educating themselves in fundamentals of Web3 security, they themselves can secure their funds without worry of external forces beyond their control, such as an institutional collapse or attack.
In addition, BitKeep uniquely positions itself as a secure repository for user’s funds, especially with its original Double Encryption Storage Mechanism (DESM) to leverage mnemonic phrases and private keys to provide dual security based on login credentials and transaction passwords. BitKeep also provides a Safety Assurance feature for users to run a quick and thorough check to detect whether their wallet address has over-authorized DApps or security risks caused by swap transaction authorizations.
Founded in 2018, BitKeep as a whole boasts over 8 million users across 168 countries and partners with several top 30 mainnets including Bitcoin, Ethereum, BNB Chain, TRON, Polygon, Arbitrum, Avalanche, Optimism, Fantom, and Solana.
Even in the event of a security breach, BitKeep has committed to a seed fund of $1,000,000 and a further allocation of 10% of the company’s monthly revenue to constantly grow the fund to meet capital adequacy requirements. This fund is stored in an address on the blockchain that is made public for our users to monitor at their convenience. The BitKeep Security Reserve is primarily designed to cover the loss of user assets caused by BitKeep, and cements BitKeep as the premier option as a safe and secure preliminary gateway into the world of Web3.
This is an Op-ed article. The opinions expressed in this article are the author’s own. Readers should take the utmost precaution before making decisions in the crypto market. BitKeep is not responsible or liable for any content, accuracy or quality within the article or for any damage or loss to be caused by and in connection to it.
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