Self-hosted Wallet Explained: Your Guide to Ownership Proofs
What Is a Self-hosted Wallet Ownership Proof?
A self-hosted wallet ownership proof is a piece of evidence to confirm that a specific address is owned/controlled by a wallet owner. The evidence can have different formats, depending on the method used to prove ownership.
This is usually asked of customers in countries where the regulation on crypto assets requires the identification of self-hosted wallets.
Read: Regulatory Frameworks that Include Self-hosted Wallets
Does Providing a Self-hosted Wallet Proof Compromise the Private Key?
Not at all. A wallet’s private key is never exposed when providing a wallet proof, which confirms ownership of a specific address, all that is “exposed” is the signed message.
When and Why Do I Need Wallet Ownership Proofs?
You may need to prove you own your self-hosted wallet to be able to transact with crypto-regulated entities like VASPs. In some countries, per the Travel Rule, VASPs are required to know who the owner of a self-hosted wallet is before allowing a deposit from or withdrawal to such an address. This is part of their anti-money laundering efforts.
Read: Regulatory Frameworks that Include Self-hosted Wallets
What Is AOPP?
AOPP stands for Address Ownership Proof Protocol. It is an open standard for communication between self-hosted wallets and VASPs to prove wallet ownership.
Using a link issued in the AOPP Portal by their VASP, wallet owners can prove ownership instantly and safely with no interruptions in their transaction experience. Furthermore, the process is completely automated.
Read: AOPP Explained
How Is AOPP 100% Accurate and Secure?
Address Ownership Proof Protocol (AOPP) relies on a cryptographically signed message from the wallet owner. The wallet owner requests the message, receives it on their wallet, and confirms their ownership. There is no need to depend on blockchain analytics, and there is no chance of forged screenshots.
How Does AOPP Differ from Other Ownership Proof Methods?
Address Ownership Proof Protocol (AOPP) has improved user experience and security. Other methods used for ownership proof heavily burden the user with cumbersome processes and communication via the customer management team.
AOPP is 100% automated for both VASPs and wallet users, unlike the Satoshi Test which is only automated on the VASP's side. Moreover, is a single-click experience for the wallet user and, therefore, easier than other manual signing methods. Lastly, AOPP proofs cannot be forged or tampered with like visual proofs.
What Is the Satoshi Test?
A Satoshi Test is a method used to verify the ownership of a self-hosted wallet address belonging to a VASP customer. To confirm ownership, the wallet owner sends a small, predefined amount of cryptocurrency from their address to the VASP within a specified time period. If the transaction is completed successfully within the given timeframe, it proves the wallet owner's control of the address.
Upon a successful transfer, the wallet owner will be reimbursed for the coins sent, although the mining fees will not be refunded. If the transaction fails for any reason, the wallet owner can retry the test, with the VASP providing a new wallet address and timeframe.
Failure to complete the transaction within the specified timeframe will render the proof invalid.
Read: The Satoshi Test Explained
Did you know that with 21 Travel Rule VASPs can configure Satoshi Test base amounts for over 2400 different DTI assets?
What Is Manual Signing?
Manual signing is a method that enables wallet owners to prove ownership of their self-hosted wallets by providing digital signatures to their VASP. Before completing a virtual asset transfer to or from a self-hosted address, the VASP generates a message and asks the wallet owner to sign it. The wallet owner typically uses their wallet software to generate a new address, and the private key linked to this address is used to sign the provided message.
The message from the VASP is copied and pasted into the wallet software, where the owner signs it and submits the resulting signature and address to the VASP. This process allows the VASP to verify the wallet owner’s control of the address.
Not only is this method one of the quicker wallet verification solutions, but it is also far more secure than other approaches, such as visual proof.
What Is a Visual Proof of Ownership?
A visual proof can be a screenshot or video shared by the wallet owner, showing the address they intend to use for sending or receiving virtual assets with their VASP. The VASP then verifies that the displayed address matches the intended one. If they align, the transaction is approved.
While visual proofs are one of the simplest wallet verification methods for self-hosted wallet owners, they also carry the highest level of risk.