Monday, 03 August 2020

Wallet Applications in a Blockchain Based P2P Financial System

Cryptocurrency sector has always been a peculiar scene where rapid development and innovation met constant doubt and pessimism.
Even though most negativity is coming from the market, there are also concerns about core technology regarding its scalability to meet the potential demand of a global decentralized finance system; at least there was until this year. With successful implementations of sharding, 2019 became a silent myriad as blockchain technology was proven to be scalable enough for a global peer to peer payment network by utilizing a reasonable number of blockchains. Of course, the future extent of crypto adoption is still a bit of a mystery, but if adopted widely, it is going to change the way people interact with financial assets. This brings us to the question how. How people are going to interact with a P2P payment network?
Let's see the options and why light wallet is the best choice for wide adoption by reviewing a multi-crypto currency light wallet Guarda.

Decentralization relies on trustlessness which refers to the ability of each wallet software to validate all processes on its own. Not surprisingly that comes with a cost as validating transactions requires keeping the entire blockchain history and active communication with peers. This translates to large storage and bandwidth need, not to mention high processor usage, which makes it at least heavy on most devices and unusable on anything mobile. One solution to bring crypto to daily life is centralized wallet, which is the opposite of core as it takes trustlessness out of the table for the end-user. Although it makes a seamless experience, the security risks are too high to make this an acceptable choice. If the worst case happens and the servers get breached, all user assets are at risk. The other solution for utilizing cryptocurrency is SPV (simple payment verification) wallet which aims to overcome the shortcomings of core without losing trustlessness.
The idea behind SPV wallet is that it is not necessary to validate all transactions to stay trustless. If the only purpose is keeping accurate track of transactions to self, this key core wallet function can be excluded by scanning only self addresses and comparing the latest blocks to a few previous ones. This concept, originally proposed in the Bitcoin Whitepaper, caused some heated discussions during the initial years regarding possible security risks which then settled after many successful implementations with no demonstrated vulnerability. Most development came from blockchain teams to target mobile devices with success but SPV wallets create a considerable overhead as well, especially on the network connection; in addition, each application is coin and mostly platform specific which can be impractical and less secure as installing new applications always carries the risk of malware which can compromise all assets held on a device. If ""be your bank"" is going to be the standard, any person should be able to use cryptocurrency safely under any normal circumstance. A cryptocurrency wallet capable of catering to such mass adoption should be able to utilize multiple coins and devices. This is where multi-currency wallets such as Guarda take the lead.

Guarda works as a typical SPV wallet with in-app private key generation and encryption, transaction screening and broadcasting. The key difference from the original SPV paradigm is that Guarda doesn't connect to random nodes. Block data is fetched from blockchain explorers, and transactions are broadcasted over certain trusted nodes for each coin. This type of applications is unofficially classified as API wallets. The result is an extremely small footprint: single request per coin to check wallet balance repeated every few minutes at most and broadcasts are carried over single requests. To replace all other transaction methods with crypto, it is important to be able to perform on the simplest mobile device and over the worst network connection which makes applications like Guarda highly valuable for crypto adoption. For the purpose of this article, Guarda is tested on numerous devices including a Android 6 smartphone and a Windows 7 netbook with all app types, and the experience is always seamless.

In terms of privacy, there is minor difference between wallet types with no superiority. When connected to a blockchain network, anyone can see the device and IP address but a public address is only visible when broadcasting a transaction. In case of Guarda, this information is shared only with a limited set of servers but public addresses are transmitted for scanning as well as broadcasting. Guarda might be in advantage there considering all connections are carried over HTTPS which makes it safer to use proxies even if they are not trusted. In addition, the lack of synchronization delay makes it easier to change IP and proxy. Guarda Privacy Policy states minimal data collection for basic wallet features. There are some further items for extended data collection, but those are related to other services like the in-app crypto-to-crypto exchange via ChangeNow and fiat-to-crypto exchange via Simplex which by law requires personal identification; or the bounty feature which requires social media engagement and such. Maybe those services can also be carried out on decentralized networks effectively one day but there is still a long way to go until average blockchain has the required capacity.

As far as security goes, Guarda is just as safe as any other software wallet that keeps the private keys encrypted on the device. It is also subject to the same vulnerability of being device-dependent. One of the main reasons why cryptocurrency is not ready to be a global peer-to-peer payment standard is that a software wallet puts the entire faith of the assets to the safety of a computing device. Unfortunately, the part of the society who can guarantee the security of a device is awfully small. Blockchain projects are not interested in solving this issue as they only develop one type of wallet, core, and rely on third party applications for the rest. This led to the development of hardware wallets as the only ""truly"" secure way of using cryptocurrency and currently the safest way to use Guarda is by connecting Ledger. However, hardware wallet may not be necessary in the future other than as a reliable storage. Wallets can use a authentication system based on sending private key signed messages between applications on separate devices over the blockchain network or an API. Similar to what Digi-ID does for websites. With this method, a user only must ensure that the first ever initialization is on a secure device; afterwards, the application can be used on any device regardless, and no future compromisation could affect the wallet including the first device. Freeing the wallet security from device security is going to be an important milestone in ""be your own bank"" and projects with multi-platform applications like Guarda has an advantage to take the lead.

If cryptocurrency is going to be the ""revolution"" that the world is waiting for, an average person should be able to make secure peer-to-peer transactions as trustless as possible in any real-life situation. This is one too many conditions to meet which relies on substructure capacity as well as end product features. 2019 was an important year for blockchain development as the technology proved to be sustainable on a massive scale setting. On the other hand, end-user solutions such as Guarda have been shaping up over the years to complement decentralization in the best way to enable trustlessness for any person as secure as possible. There is still work ahead before the revolution can be materialized, but the future is finally in sight.

By Twitter profile: @iguessitsokay00

The author is the second winner of the Creamcoin award from the Gurda Wallet listing campaign

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