What would you say is the number one stumbling block to the mass adoption of cryptocurrency? Would it be price volatility, ease of use, social acceptance...?

Thinking about it from the user's perspective, one could argue that the primary obstacle here is the proper management, and safe recovery of awkward seed phrases, the 12 to 24 words that are used to derive the keys to your crypto wallets.

Have you ever been helping someone setup a crypto wallet, only to have them run away as soon as you try to explain the importance of safely storing the seed phrase?

To make the process more comfortable, we need a better explanation than "if you lose this phrase, all of your money is gone".

Traditional Finance Vs. Crypto

In traditional finance, there has always been a trusted party who can help you to recover lost funds.

For example, if you forget the password to your online banking account, you can always call your bank's 1-800 number, prove your identity, and have them reset your password. Also, if you were to forget your debit card PIN code, you could visit your local bank branch and have them reset it.

In the world of crypto, however, you are 100% responsible for your funds.

Unless you are storing your crypto on a centralized exchange (where it's vulnerable to hacks, theft, and confiscation), there is no trusted party who can recover your crypto if you forget your seed phrase. In fact, that's the primary selling point of crypto - not relying on corruptible banks.

Therefore, it's critical that you safely store and manage your seed phrases, so that you neither lose them, nor have them fall into the hands of somebody malicious, who could either steal money from you, or impersonate you. But what if, despite your best efforts, you still lose it?

One potential solution here is to share your seed phrases with a trusted friend or family member who could help you in the event of loss. But what if they are negligent with your seed phrase and end up losing it, or storing it insecurely (as a screenshot in the iCloud, for example).

The question is, how can we overcome the problem of seed phrase recovery, while still retaining the decentralized aspect of crypto that gives it value in the first place?

Enter The DeRec Alliance

Dr. Leemon Baird of Hedera is leading the DeRec Alliance, a coalition of blockchain/DLT projects whose primary aim is the standardization of decentralized recovery of user secrets. This includes not only crypto seed phrases, but passwords, photos and notes too.

The idea behind DeRec (Decentralized Recovery) is that you combine your seed phrases and other secrets into an encrypted vault on your phone, break the vault apart into pieces (shares), and then distribute those shares to a number of trusted "helpers".

The DeRec app on your phone would ping each of your helpers on a daily basis to verify that they still have a portion of the vault, because recovery is only possible if you can obtain the shares of 50% of your helpers.

In the event that you lose your smartphone, along with your seed phrases and other secrets, you would contact your helpers and ask each of them to send you their portion of the vault, and the app on your phone would re-assemble the pieces to recover your data and the encryption key.

To make this process as secure as possible, Dr. Baird recommends setting it up in a way where you would have to physically present yourself (perhaps to a crypto bank or a Helper-As-A-Service), in order to prove your identity and obtain their share of your vault.

The DeRec Alliance already has Hedera, Cardano, Ripple, and Algorand on board as founding members, and they are inviting others to join the initiative.

Challenges

While DeRec is an interesting idea, it does have some potential pitfalls.

What if one of your helpers loses their phone, along with their share of the vault? Thankfully, the protocol has been designed such that you would only need half of your helpers to respond to you in the event of loss.

That said, how do we prevent a hacker from accessing the app to see who all your helpers are, and then work to compromise them one-by-one? Even if the hacker only managed to undermine a few of your helpers, would it then become easier to brute-force your vault?

Given the brain-power behind the founding members, we can only assume that these issues will be resolved as the DeRec Alliance grows and evolves.

Until next time...

There are several obstacles to the mass adoption of cryptocurrency, including price stability, critical bugs, and user-friendliness, but DeRec could solve the primary issue, which is the decentralized and secure recovery of seed phrases.

If you learned something new from this article, be sure to check out my other posts on crypto and finance here on the HIVE blockchain. You can also follow me on InLeo for more frequent updates.

Resources

Seed Phrase Image [1]
Dr. Baird's YouTube Video Explaining DeRec [2]