Patenting Fintech: ArentFox Schiff Receives Patent for Acronis International GMBH for Securing Crypto Asset Transactions Using Smart Contracts | ArentFox Schiff
Crypto asset transactions are rapidly growing in popularity. However, a wave of cyber security breaches and hacker attacks on cryptocurrency exchanges and cryptocurrency wallet providers have caused billions of dollars in loss of crypto assets to their owners.
For Acronis International GmbH, a global provider of cyber security and backup solutions, ArentFox Schiff has obtained a US patent for a method of securing crypto asset transactions using smart contracts.
A crypto-asset is a digital object that has undergone tokenization, which is a process of transferring the object’s value to a blockchain. In blockchain-based operations, a user’s cryptoactive wallet is typically represented by an “address”, which is a unique identifier or value derived from a public encryption key used to control the respective wallet (e.g., hash of their public key). Private encryption keys of a public/private key pair are maintained as secrets. A public/private key scheme works well when users perform transactions on their own. Often, however, the user may be a customer of a financial organization (eg, a cryptocurrency wallet service provider) that executes cryptoasset transactions on the user’s behalf. In such cases, proper user management becomes difficult due to the security risks and inefficiencies involved in the transfer of a user’s private keys to the financial organization.
Acronis’ US Patent No. 11,410,168 addresses this problem by using smart contracts to manage user cryptowallets and facilitate secure transactions of cryptoassets. In particular, a user wallet is represented by a user wallet smart contract published on a distributed ledger maintained by a blockchain network, rather than by a simple address in a blockchain transaction data structure. The user-wallet smart contract includes an owner field that contains a reference to the public encryption key of the wallet owner (e.g., the user) or a financial organization that holds the user’s wallet (e.g., a wallet service provider). In addition, a crypto-asset (eg a token, coin, etc.) is represented by a token smart contract, which is also published on the distributed ledger. The token smart contract includes transfer functionality that defines rules and procedures for transferring cryptoassets from one user’s wallet to another user’s wallet.
When the user decides to change the ownership of his wallet (e.g. to ask a third-party organization, i.e. custodian, to perform the transactions with cryptoassets on his behalf), a blockchain transaction data structure is generated that specifies the user-wallet smart contract. The transaction data structure is configured to invoke a change-of-ownership functionality for the user-wallet smart contract, which in turn transfers, using the public encryption key of the new owner (eg, another user or another financial organization), ownership of the user’s wallet to the the new owner without transferring a copy of the user’s private encryption key to the new owner. The blockchain transaction data structure is then published to the distributed ledger to validate the change of ownership. This way, the original user’s private cryptowallet encryption key remains a secret.
When the user decides to transfer cryptoassets from the wallet to another user’s wallet, another blockchain transaction data structure is generated that includes a number of data fields to facilitate and validate the transfer of cryptoassets from a sender wallet to a recipient wallet. In particular, a receiver wallet field specifies the address of the token smart contract that defines the crypto-asset. A data payload field for the blockchain transaction invokes the transfer functionality of the token smart contract with parameters specifying the receiver’s wallet address. By doing this, the user wallet smart contract handles verification of whether a given party (eg, a user or authorized financial organization) is allowed to perform such a transfer. In this way, the use of smart contracts significantly improves the security of cryptoasset transactions.
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