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https://github.com/canontech/proxy-hot-wallet

Demo for a safe and effective custodial hot wallet architecture using features innovated by Substrate FRAME pallets and featured in production chains such as Polkadot and Kusama.
https://github.com/canontech/proxy-hot-wallet

multisig-address polkadot substrate transaction transfer-funds

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Demo for a safe and effective custodial hot wallet architecture using features innovated by Substrate FRAME pallets and featured in production chains such as Polkadot and Kusama.

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# Proxy hot wallet demo for Substrate (Polkadot & Kusama)



Demo for a safe and effective custodial hot wallet architecture using features innovated by [Substrate](https://substrate.dev/) FRAME pallets and featured in production chains such [Polkadot](https://polkadot.network/) and [Kusama](https://kusama.network/).



By [@joepetrowski](https://github.com/joepetrowski) & [@emostov](https://github.com/emostov)



**N.B.** This demo needs some updates to reflect best practices. Primarily, there should be NonTransfer proxies that have the ability to remove the Transfer proxies if a questionable proxy announcement is made. Please file an issue if would like clarification and/or see the updates reflected in the demo.



## Disclaimer



This repo is for demonstration purposes only.



## Table of contents



- [Background](#background)

- [Technologies](#technologies)

- [Architecture](#architecture)

- [Demo outline](#demo-outline)

- [Run](#run)



## Background



When managing significant sums of funds on behalf of other entities, a major challenge is moving around funds without compromising the private key of the deposit addresses. In traditional block chains the private key must be "hot" (on a device exposed to the internet) in order to efficiently and programmatically move funds from the account (i.e. accounts that a user might deposit funds to). The moment this "hot" key is comprised the attacker has total control of funds.



In this repo we demonstrate an architecture pattern enabled by the [Substrate FRAME](https://substrate.dev/docs/en/knowledgebase/runtime/frame) [`proxy`](https://github.com/paritytech/substrate/tree/master/frame/proxy), [`multisig`](https://github.com/paritytech/substrate/tree/master/frame/multisig) and [`utility`](https://github.com/paritytech/substrate/tree/master/frame/utility#for-pseudonymal-dispatch) (see pseudonymal dispatch) pallets, that minimizes attack vectors associated with operating a hot wallet as a custodian.



The "hot" account is a multisig composite address that adds a proxy which announces transactions that can be executed after some delay. Pseudonymal accounts are derived from the multisig address and can be generated for every new deposit by a user to keep accounting clear. The proxy account can regularly transfer funds from the derivative accounts to a cold storage location(s). If the system detects a announcement by the proxy for a transfer to a non-certified address, then the multisig accounts can broadcast transactions to revoke the proxies privileges within the announcement period and prevent any of the proxies announced transactions from being executed.



## Technologies



- [Parity Polkadot node implementation](https://github.com/paritytech/polkadot#polkadot)

- [@substrate/txwrapper: offline transaction construction lib for Substrate](https://github.com/paritytech/txwrapper)

- [@substrate/api-sidecar: RESTful api microservice for Substrate nodes](https://github.com/paritytech/substrate-api-sidecar)

- [@polkadot/util-crypto: Substrate cryptography utility lib](https://github.com/polkadot-js/common/tree/master/packages/util-crypto)



## Architecture



![architecture](/src/static/architecture.png)



### Setup



1) Create m-of-n multisig MS from K = {k} keys, held by trusted parties (e.g. founders).

2) Set a proxy H with time delay T for MS.

3) Create derivative addresses D = {d} for user deposits.

4) Create cold storage S (not discussed here).



#### Simple use



1) Proxy H announces call hash on-chain.

2) H sends actual call to backend system.

3) Backend ensures that call hash matches and parses call.

4) Applies internal rule (e.g. to whitelisted address).

5) If alerted, m-of-n K can reject the transaction.

6) If timeout, H broadcasts the actual call.



#### Normal transaction flow



1) User i sends a deposit of v tokens to their addresses, di

2) Listener observes balances.Transfer event to address di 

3) A machine** constructs the following call C***:



      ```c

      C = utility.as_derivative(

              index: i,

              call: balances.transfer(

                  dest: S_pub,

                  value: v,

              )

          )

      ```



4) Key H signs and broadcasts the transaction:



    ```c

    proxy.announce(real: MS_pub, call_hash: hash(C))

    ```



5) Listener observes announce transaction on-chain and asks for the call C. It verifies two things:



    1) Its hash matches the announcement, and

    2) Any internal rules, e.g. the transfer is to a whitelisted S.



6) Verifications pass, no alarm.

7) After time delay T, any account can broadcast the transaction:



      ```c

      proxy.proxy_announced(

          delegate: H_pub,

          real: MS_pub,

          force_proxy_type: Any,

          call: C,

      )

      ```



8) Listener verifies that the transfer was successful when it sees a `balances.Transfer` event to address MS.



** Can be any machine, even without access to key H.

*** Note that it can transfer the full value v as the address H will pay the transaction fees.



#### Call rejection



1) Verification does not pass.

2) Owners of K are alerted and have time T to react.

3) Construct the following call R**:



    ```c

    R = proxy.reject_announcement(

            delegate: H_pub,

            call_hash: hash(C),

        )

    ```



4) Owners of K broadcast the call R.

5) Fallback: owners cannot either override the flag or broadcast their multisig transactions in time.

6) System hold immortal transaction ready to remove H as a proxy for MS (`proxy.remove_proxies()`). The system can submit this at any point. Note: only the first multisig transaction can be immortal and stored; the remaining need the `TimePoint` of the first multisig transaction so they need to be constructed in real time.



** In the event of a malicious announcement it is always recommended to call `proxy.remove_proxies()` ASAP.



#### Misc. optimizations



1) Use batch transactions, e.g.:



    ```c

    utility.batch(

      utility.as_derivative(index: 0, call: C0),

      utility.as_derivative(index: 1, call: C1),

      utility.as_derivative(index: 2, call: C2),

      …

    )

    ```



2) Reduce T and only use the fallback for faster settlement.

3) Use anonymous proxies for MS to allow member change, in case some Ki is compromised.



## Demo Outline



1) Generate 6 keyrings and make sure accounts have funds

    - 3 for multisig

    - 1 for proxy

    - 1 for stash

    - 1 for depositor

2) Generate a 2-of-3 multisig address and log it to console

3) Transfer funds from Alice to the multisig

    - `balances.transfer()`

4) Set the 4th key as a proxy for the multisig

    - `Call = proxy.addProxy(key4, Any, 10)` // 10 blocks = 1 min

    - `multisig.approve_as_multi(hash(Call))`

    - `multisig.as_multi(Call)`

5) Create derivative accounts from multisig address for depositor(s) to send tokens to

6) Transfer funds `v` from depositor to two derivative accounts

    - `balances.transfer()`

7) Create two calls: one good and one bad

    - `C0 = utility.as_derivative(0, balances.transfer(stash, v))`

    - `C1 = utility.as_derivative(1, balances.transfer(attacker, v))`

8) Demonstrate the happy path

    - `key4` broadcasts `proxy.announce(hash(C0))` and sends `C0` to another worker

    - safety worker decodes `C0` and ensures that destination address is `stash`

    - after 10 blocks, `key4` broadcasts `proxy.proxy_announced(C0)`

9) Demonstrate adversarial path

    - `key4` broadcasts `proxy.announce(hash(C1))` and sends `C1` to safety worker

    - safety worker decodes `C1` and sees that destination address is not `stash`

    - `multisig.approve_as_multi(proxy.remove_proxies(hash(C1)))`

    - `multisig.as_multi(proxy.reject_announcement(hash(C1)))`



## Run



1) This demo relies on using a parity polkadot development node; you can download the [source here](https://github.com/paritytech/polkadot). Follow the instructions to download and compile the code.

2) Make sure the node's database is empty by running: `./target/release/polkadot purge-chain --dev` (**N.B.** the nodes DB must be purged before every run of the demo script)

3) Start the node by running `./target/release/polkadot --dev`

4) In another terminal session change directories to this project and install dependencies by running `yarn`

5) Start up Sidecar by running `yarn sidecar`

6) In another terminal session, make sure you are in this project directory and start the demo by running `yarn start`



Note: this script assumes the polkadot node and Sidecar are using the defualt development ports.



[Sample demo output](/out.log)