Paper 2021/416

Cryptocurrencies with Security Policies and Two-Factor Authentication

Florian Breuer and Vipul Goyal and Giulio Malavolta

Abstract

Blockchain-based cryptocurrencies offer an appealing alternative to Fiat currencies, due to their decentralized and borderless nature. However the decentralized settings make the authentication process more challenging: Standard cryptographic methods often rely on the ability of users to reliably store a (large) secret information. What happens if one user's key is lost or stolen? Blockchain systems lack of fallback mechanisms that allow one to recover from such an event, whereas the traditional banking system has developed and deploys quite effective solutions. In this work, we develop new cryptographic techniques to integrate security policies (developed in the traditional banking domain) in the blockchain settings. We propose a system where a smart contract is given the custody of the user's funds and has the ability to invoke a two-factor authentication (2FA) procedure in case of an exceptional event (e.g., a particularly large transaction or a key recovery request). To enable this, the owner of the account secret-shares the answers of some security questions among a committee of users. When the 2FA mechanism is triggered, the committee members can provide the smart contract with enough information to check whether an attempt was successful, and nothing more. We then design a protocol that securely and efficiently implements such a functionality: The protocol is round-optimal, is robust to the corruption of a subset of committee members, supports low-entropy secrets, and is concretely efficient. As a stepping stone towards the design of this protocol, we introduce a new threshold homomorphic encryption scheme for linear predicates from bilinear maps, which might be of independent interest. To substantiate the practicality of our approach, we implement the above protocol as a smart contract in Ethereum and show that it can be used today as an additional safeguard for suspicious transactions, at minimal added cost. We also implement a second scheme where the smart contract additionally requests a signature from a physical hardware token, whose verification key is registered upfront by the owner of the funds. We show how to integrate the widely used universal two-factor authentication (U2F) tokens in blockchain environments, thus enabling the deployment of our system with available hardware.