Security is paramount in the digital world! In recent years, the increase in cyber attacks, theft of personal data, and financial losses have shown us that we need to take more measures to secure our digital assets. With the rise of cryptocurrencies, blockchain technologies, and other digital assets, the importance of digital keys has grown significantly. So, how can you protect your assets in your digital wallets? The answer is simple: Hardware Security Modules (HSMs). HSMs provide the strongest shield against cyber attacks by storing your digital keys on a physical device. In this blog post, we will discuss what HSMs are, how they work, and why they are important. We will also cover the aspects of purchasing HSMs and service providers, their role in storing private keys, and the points to consider when acquiring this service. Additionally, we will examine a case study related to the use of HSMs.

 

 

In this article, we will cover the following topics:

What is an HSM?

What is a Private Key? How Can HSMs Be Used to Store Private Keys

Why and How Do Organizations Need HSM Services?

Why is HSM Service Important for Cryptocurrency Exchanges?

What Should Be Considered When Acquiring HSM Services?

Case Study | AWS CloudHSM

 

 

What is an HSM?

 

An HSM, or Hardware Security Module, is a specialized device used to keep sensitive data secure. These devices are like digital vaults where very important information such as your bank passwords and cryptocurrency wallets are stored. Why do we use HSMs? They are used for Digital Signing to ensure documents are protected against forgery, Data Encryption to prevent unauthorized access by encrypting sensitive data, and Authentication to verify users’ identities. Simply put, an HSM is your safe in the digital world. It keeps your valuable items (digital keys) secure.

HSMs provide a secure environment for the generation, storage, and management of digital keys, ensuring the secure generation, storage, and distribution of keys. They are particularly capable of handling large volumes of cryptographic operations quickly and efficiently, which is essential for institutions with high transaction volumes such as financial institutions and cryptocurrency exchanges. HSMs are typically certified to comply with international security standards like FIPS 140–3 and Common Criteria, demonstrating that they meet specific security requirements.

 

 

What is a Private Key? How Can HSMs Be Used to Store Private Keys?

 

A private key is a secret key used in cryptographic operations and plays a critical role in creating digital signatures, encryption, and decryption processes. In the world of cryptocurrencies, private keys allow users to control their digital assets; without these keys, transferring or spending cryptocurrencies is impossible. The private key proves ownership of the digital wallet and prevents unauthorized access. Losing the private key or it falling into the wrong hands results in a loss of access to the user’s assets, which cannot be recovered.

In cryptocurrency, a private key is a secret code used to secure digital wallets. Private keys are typically long, complex strings of alphanumeric characters, making them difficult to guess or crack. In systems like Bitcoin, private keys are usually generated using the Elliptic Curve Digital Signature Algorithm (ECDSA). This private key is necessary for operations such as transferring and spending cryptocurrencies. The private key controls the assets in the user’s wallet and prevents unauthorized access. Cryptocurrency exchanges and wallet providers must offer various security protocols and tools to help users securely store their private keys. One such method is using HSMs.

HSMs also ensure that cryptographic operations are performed securely. For example, creating digital signatures or encryption operations is done within the HSM, and the private keys never leave the device during these processes. HSMs are essential for financial institutions and cryptocurrency exchanges with high-security requirements because they can perform these operations at high speed and performance, reducing transaction times.

Another advantage of using HSMs is that they meet regulatory and compliance requirements. Many financial regulatory bodies mandate the use of HSMs to securely store digital keys. HSMs are typically certified to comply with international security standards like FIPS 140–3 and Common Criteria, demonstrating that they meet specific security requirements and are reliable.

HSMs offer several operational advantages in storing and managing private keys. Centralized key management allows large organizations to manage keys more efficiently. HSMs ensure continuous accessibility of keys through automatic backup and recovery features. Additionally, HSMs enable secure user authentication processes, playing a crucial role in multi-factor authentication systems.

 

 

Which Organizations Need HSM Services and Why?

 

HSMs are widely used in various sectors, including financial services, banks, cryptocurrency exchanges, public institutions, healthcare services, and telecommunications. Banks and payment processors use HSMs to protect customer data and financial transactions. In cryptocurrency transactions, secure storage and management of private keys, as mentioned earlier, ensure the security of exchanges and the protection of users’ assets. HSMs protect these keys against unauthorized access and enable secure cryptographic operations. Government institutions utilize these devices to safeguard national security and citizen information. Healthcare organizations use HSM solutions to ensure the security of patient data, while telecommunications companies prefer HSMs to protect customer data and communication information.

HSMs used for blockchain security solutions have features such as key generation and storage, encryption, IP protection, signature verification, and dedicated hardware memory. These specialized hardware elements ensure data security and privacy, facilitating effective information management and eliminating dependence on online storage.

 

 

Why is HSM Service Important for Cryptocurrency Exchanges?

 

In 2020, the KuCoin Crypto Exchange suffered a hack where over $280 million was drained. Following this event, KuCoin CEO Johnny Lyu stated that one or more hackers obtained the private keys to the exchange’s hot wallets. KuCoin transferred what was left in them to new hot wallets, abandoned the old ones, and froze customer deposits and withdrawals. Although the exchange covered customer assets with its insurance fund, the security breach led to a loss of trust among customers.

HSM services are crucial for cryptocurrency exchanges, as illustrated by the example above because the secure storage of digital assets directly impacts the operational security of exchanges and customer trust. Private keys used in cryptocurrency transactions enable users to control their digital assets, and the security of these keys ensures the safety of the assets.

Cryptocurrency exchanges conduct high-volume and high-value transactions daily. To ensure these transactions are performed securely, private keys must be stored in a secure environment inaccessible from the outside. HSMs keep private keys in a physically isolated environment, making it nearly impossible for these keys to be accessed or stolen from the outside. This protects exchanges from security breaches and safeguards user assets.

Furthermore, cryptocurrency exchanges may be subject to security standards and compliance requirements from regulatory bodies. HSMs, typically certified to comply with international security standards like FIPS 140–3 and Common Criteria, play a significant role in helping exchanges meet these regulations. This compliance demonstrates that exchanges meet legal requirements and offer secure services to their users.

Ensuring user trust is another critical aspect of cryptocurrency exchanges. Users want to be assured that their assets are secure, and the strong security measures taken by exchanges reinforce this trust. The use of HSMs enhances the reliability of the exchange by protecting user assets. This is crucial for expanding the user base and gaining a competitive advantage in the market.

From a user experience perspective, instant and fast transactions are essential in cryptocurrency exchanges. HSMs can perform these operations at high speed and reliability. This positively affects the user experience and increases the operational efficiency of exchanges.

HSMs also provide high-performance cryptographic operations. Transactions in cryptocurrency exchanges need to be performed quickly and reliably. HSMs can handle these operations efficiently and securely. This enhances user experience and boosts the operational efficiency of exchanges.

 

 

What Should Be Considered When Acquiring HSM Services?

 

Several critical factors must be considered when acquiring HSM services.

Certification: Firstly, checking whether the HSM provider has security certifications is essential. Security certifications indicate that the provider’s devices comply with international security standards and meet specific security requirements. Certifications like FIPS 140–3 and Common Criteria are vital indicators of the reliability and robustness of HSMs.

Infrastructure and Compatibility: Moreover, compatibility with the existing infrastructure is crucial. Choosing an HSM that can seamlessly integrate with the current software and hardware systems minimizes technical issues and facilitates the integration process. HSMs must have the necessary APIs and integration features to ensure compatibility.

Technical Support and Maintenance: Support and service levels are another essential factor to consider. The technical support and maintenance services offered by the HSM provider are critical for the long-term performance and reliability of the devices. Evaluating whether the provider offers professional support in the installation, management, and maintenance of devices and whether they provide quick and effective solutions to encountered problems is necessary.

Scalability: Additionally, the scalability and flexibility of the HSM should be considered. Given that business needs may change and grow over time, the HSM needs to adapt to these changes and be easily scalable. A flexible HSM solution can respond appropriately to future expansions and changes.

Security: When acquiring HSM services, it is also necessary to thoroughly examine the security features. Additionally, the backup and recovery features of the HSM ensure continuous accessibility of keys and minimize the risk of data loss.

Cost: Lastly, cost and return on investment should be evaluated. By considering the total cost of the HSM service, long-term maintenance and support expenses, and potential benefits, it is possible to choose the most suitable solution. The security and operational efficiency provided by HSMs can increase the return on your investment and reduce corporate risks.

Considering these factors helps you choose the most suitable HSM solution to meet your organization’s security needs and protect your digital assets. Choosing the right HSM provider is critical for long-term security and operational success. In this context, Vinu’s HSM solutions offer a key management model encompassing the secure creation, storage, and use of private keys in a secure environment and provide the most suitable solution for your business within the framework of the above considerations.

 

 

Case Study | AWS CloudHSM

 

In a project conducted with a cryptocurrency exchange, a module was created and managed using HSMs to ensure the security of private keys. In this project, HSM solutions were integrated to securely store user assets and perform transactions reliably. The details of this process are as follows:

 

1. Project Initiation and Needs Analysis: At the project’s outset, we conducted a comprehensive needs analysis to ensure the security of users’ private keys. The analysis determined that private keys should be created and stored within HSMs. It was decided that these keys needed to be kept in a physically isolated environment.

 

2. Integration Process: During the module creation process, AWS (Amazon Web Services) infrastructure was used along with HSMs. AWS CloudHSM was chosen for its high-security standards and scalable structure. By working in integration with AWS, we combined the security provided by HSMs with the flexibility and accessibility of cloud services.

 

3. Security and Performance: One of the most significant advantages of choosing HSMs was that private keys never left the device. All cryptographic operations were performed within the HSM. This ensured the security of transactions and the protection of user assets. Additionally, the high performance offered by HSMs allowed transactions to be executed quickly and seamlessly, positively affecting the user experience.

 

4. Compliance with Regulations: During the project, it was seen that HSMs provided great benefits in complying with regulations. Financial regulations and security standards mandated the use of HSMs. Since AWS CloudHSM had international security certifications like FIPS 140–3, it played a crucial role in meeting these requirements. This ensured the legal compliance and security of the cryptocurrency exchange.

 

5. Our Expert Team: Our team consists of cryptography experts, software engineers, and security analysts. This team played an active role in all processes, from the design to the implementation of the HSM module. One of the advantages of using AWS infrastructure was that our team could work quickly and flexibly. The tools and services offered by AWS increased operational efficiency throughout the project.

 

6. Results: In this cryptocurrency exchange project, the use of HSMs provided an ideal solution to ensure the security of private keys and perform transactions reliably. The high-security standards, performance, and compliance features offered by HSMs provided significant advantages in protecting users’ digital assets and complying with regulations. This structure helped the cryptocurrency exchange gain trust.

 

 

 

 

The performance of AWS CloudHSM clusters varies based on specific workloads. To increase performance, you can add additional HSM instances to your clusters. Performance can vary based on configuration, data size, and additional application load on your EC2 instances. We encourage load testing of your application to determine scaling needs.

The following table shows approximate performance for common cryptographic algorithms running on an EC2 instance with hsm1.medium instances. Ensure that your HSM service operates within the limits specified below.

 

 

 

 

 

 

1. A two-HSM cluster with the Java multi-threaded application running on one c4.large EC2 instance with one HSM in the same AZ as the EC2 instance.

2. A three-HSM cluster with the Java multi-threaded application running on one c4.large EC2 instance with one HSM in the same AZ as the EC2 instance.

3. A six-HSM cluster with the Java multi-threaded application running on one c4.large EC2 instance with two HSMs in the same AZ as the EC2 instance.

 

 

As Vinu, you can contact us to learn more about our HSM services, find the solutions that best meet your needs, and ensure the security of your digital assets. Our expert team is here to guide you in developing and implementing custom HSM solutions. We are always ready to answer your questions about our HSM solutions, evaluate your demo requests, and provide you with the best service.