After the FTX bankruptcy, I moved most of my crypto assets to decentralized wallets, believing it would be safe. However, the two incidents I witnessed made me realize how foolish and complacent I was.
The first case is the story of the CEO of a crypto company on the verge of bankruptcy after the company's cold wallet was hacked. The cold wallet was managed by only the CEO himself, and he insisted that he was innocent. Since the cold wallet's recovery mnemonic was kept in the company's safe, the CEO said he suspected that one of the few colleagues with access to the company's vault had embezzled. He lost both his company's assets and his confidence in his closest colleagues.
The second was the death of a young employee of my partner company. No one expected him to die suddenly in his mid-20s. The bereaved family was able to access the deceased's cryptocurrency exchange account through the inheritance process, but most of the coins were withdrawn to his personal wallets. I explained to the bereaved family about the mnemonic and advised them to find him at home or in the office and restore his wallet, but the bereaved family said they could not find it.
The above two cases show a contradictory situation that occurs in mnemonic management. The mnemonic should not be leaked, but not lost at the same time. If an individual manages it secretly, the possibility of leakage decreases, but the possibility of loss increases. To reduce the likelihood of loss, storing it in multiple places or making it accessible to multiple people increases the likelihood of leakage.
I have studied various solutions to resolve this contradiction, but it was not appropriate for more than one of the reasons below.
- Need to trust and rely on third parties: there is fundamentally no difference to using a centralized wallet. Remember Bitcoin was born out of a distrust of centralized institutions.
- Relying on deterministic systems: Relying on deterministic systems such as body information (fingerprints, irises, etc.) can lead to such information being leaked or leaked to someone who knows the information or system.
- Fragile memory: The so-called Brain Wallet, which uses various memory methods, has the potential to damage memory, no matter how good the memory method is, and in many cases, it is impossible to recover.
- Limitations of access control: In the event of a serious problem with the original owner of the wallet, the ownership must be properly transferred to the person designated by the original owner, but safe transfers are difficult or are possible to be stolen to a third party during the transfer.
Finding Mnemo can solve one of the biggest problems in realizing self-custody by overcoming the above problems in a decentralized way by using individual preferences to store and restore the mnemonic.
A brief description of the finding Mnemo operation is as follows. Most crypto wallets utilize the BIP-39 standard to create the mnemonic that combines 12 to 24 words among total 2048 (11 bits) words to restore their wallets. FindingMnemo converts the binary data of the mnemonic into personal preferences so that it can be safely managed without relying on a third party or special memory skills. For example, the 527th English word dove in the BIP-39 standard may be expressed as a binary number 01000001110. FindingMnemo converts the binary representation of the mnemonic into 11 personal preferences, as shown in Table 1 below. If you prefer A between A and B, you can match it to 1, and if you prefer B, you can match it to 0.
And in backup of FindingMnemo, I safely can save the mnemonic by keeping only the list of A vs. B. When you need a mnemonic, you can recover the original mnemonic data 01000001110 by selecting my own preference.
FindingMnemo can overcome the problems of existing solutions as follows.
- There is no need to trust and rely on centralized third parties.
- The risk of leakage is extremely low because it is a stochastic system. In the experiment, a well-made FindingMnemo is difficult to guess at most 60% of all bit data, even if it is the owner's family or close friends. Of course, if your Instagram is plastered with photos of your dog and everyone around you knows you're a dog person, you shouldn't include items like Dogs vs. Cats on the list. For example, I definitely prefer one of "Gatorade vs. Powerade," but even my parents, wife, and best friends can't clearly answer which of the two I prefer, and they can't help but guess at random.
- You don't have to train special memory methods to use Finding Mnemo or worry about losing your memory. Of course, the FindingMnemo may need to be updated from time to time, as preference can change over time. Above all, over time, some preferences have become unclear, so even if a few bits of data are unclear, it is technically recoverable. On the other hand, existing memory methods can make your memory irreparable even if you hire the best hypnotist.
- Another one of the most beautiful advantages of FindingMnemo is that you can safely deliver the mnemonic to anyone you want. You can use your precious people's preferences to create FindingMnemo so that if something happens to you, it gets to them. Even if FindingMnemo is leaked to someone else during the transfer process, others who do not know the heir's preference will not be able to recover the mnemonic. For example, even if your attorney betrays you and opens the FindingMnemo, they won't be able to restore the mnemonic.
There may be concerns that personal preferences for FindingMnemo can also be hacked. We are concerned that personal preferences can be grasped by analyzing Internet search records, consumption patterns, and personal information. However, if you follow the principles of writing FindingMnemo, you can create FindingMnemo that cannot be restored even if your family, closest friends, and Google, Apple, and Facebook share your information and collaborate together. (Details will be covered in the next blog.)
Do you know an anecdote that the Soviet Union was using pencils while NASA was wasting millions of dollars to develop a ballpoint pen that works well even in zero-gravity space? What you need to safely back up your crypto wallet is not a multi-million dollar super safe. Generate your own FindingMnemo today!