Please describe your proposed solution.
We propose a decentralized seed phrase manager. Using On-Chain Encrypted Storage, our solution provides a secure and convenient approach to seed phrase management. This addresses the security concerns of centralized seed phrase managers by storing seed phrases on a distributed network. it makes it much more difficult for a single entity to hack or compromise all the seed phrases. Furthermore, it offers security from password loss and seed phrase loss that would occur due to miss-typing, misplacing or theft giving users the security and the convenience of the blockchain.
How it works
Users will get the seed phrase of 12 or 24 words from the front end of a website. They can write it down or keep it like you would normally.
The application will then generate an encryption key using a Fernet encryption for instance by combining the seed phrase and any other information that only the wallet owner would know such as a hash of their Social Security or Passport number. This key should be kept safely. It can be stored in a centralized cloud storage account which has a relatively easy recovery method such as 2FA because it is not of much value to anyone by itself.
If hacked, the hacker would not know the seed phrase or any other data the user used to encrypt, hence the fernet key is useless to anyone other than the owner of the wallet.
Implementation
This project will use a parameterized smart contract on the Cardano Blockchain that will use the encryption key, hashed personal information and the seed phrase count as parameters. Each word will then be encrypted and stored as a Datum.
An example would be; If there are 12 words of a seed phrase, we will have 12 UTXOs created where each UTXO stores one encrypted word as Datum.
Recovery
In the unfortunate event that a user forgets their wallet password and is unable to retrieve their seed phrase for one or the other reason, they simply need their encrypted key and their private personal data to recover their seed phrase.
On the Cardano blockchain, they can redeem the encrypted keyword (basically the UTXO gets unlocked means they know that to be the encrypted key and they can decrypt it because they have the encryption key). Each UTXO is recovered in a similar manner. Technically the user need not unlock the funds but rather know it is their word.
We can measure the impact of our product from community adoption and feedback.
How does your proposed solution address the challenge and what benefits will this bring to the Cardano ecosystem?
The proposed solution addressed the challenge of seed phrase management whether self-custody or centralized by relying on the benefits of Cardano's EUTXO model to store the seed phrase in a decentralized fashion as well as the use of Smart contracts to verify the validity of the owner of the seed phrases while recovering lost keys.
This product will make it onboarding users easier as the management of seed phrases is a cumbersome and sometimes stressful action.
It will further protect the assets of Cardano Web3 users by ensuring that they can always recover their seed phrases at will and makes it harder for their assets to be hacked especially due to centralised seed phrase managers being hacked or compromised.
More info on proposed solution: https://github.com/rchak007/decentralSeedRecover
How do you intend to measure the success of your project?
We can measure the success of our product from community adoption and feedback.
This product will make it onboarding users easier as the management of seed phrases is a cumbersome and sometimes stressful action.
It will further protect the assets of Cardano Web3 users by ensuring that they can always recover their seed phrases at will and makes it harder for their assets to be hacked especially due to centralised seed phrase managers being hacked or compromised.
Please describe your plans to share the outputs and results of your project?
We will open source the script validator including the architecture of the solution and the off-chain dApp.
How do you expect to use the results generated from the project in further research and development activities?
After completion, further research and development will require more funding to constantly improve the architecture to provide the best state-of-the-art implementation. Further research can also be done to do cross-chain implementation to extend the reach of Cardano solutions to other chains.