The product, which looks more like a credit card than traditional hardware wallets, costs $ 40 and aims to act as the most intuitive Bitcoin signing device to integrate a wider range of people around the world into more bitcoin self-custody setups. safe.
Challenges in Bitcoin Self-Custody
Bitcoin self-custody isn’t easy. It has come a long way over the years, but it’s probably still far from intuitive.
Hot wallets, those in which private keys remain “hot” online in a phone or computer, are perhaps the most popular bitcoin wallets given their convenience. The user just needs to download an app to their phone, create the wallet, write down the reset words and voila, it’s ready to go. The trade-off is obviously security: – being connected to the Internet makes this configuration more vulnerable to hacking, theft and other attacks.
The alternative, cold wallets, keep private keys offline, increasing security but at the expense of usability. Cold storage solutions typically require the user to go through many more steps to move their bitcoin. While it might be a feature rather than a bug for larger holdings, a less fluid transaction experience can be a pain for smaller bitcoin stacks.
So what’s the solution?
Tapsigner: a contender for the “warm” middle ground
Coinkite’s Tapsigner seeks to bridge the gap between the worlds of hot and cold storage with a more intuitive user experience.
The new product, which has already begun shipping to consumers, carries a security element –– the security chip inside the hardware wallets –– in an NFC card. This not only allows for better portability as it is the size of a typical credit card, but also allows users to interact with their bitcoins in an already familiar way: tap to pay or, in this case, tap to sign.
In the background, Bitcoin transactions work in stages. First, the transaction is constructed by having the user –– or the application –– select the inputs (the addresses that send the bitcoin), the amount to be sent, the amount to be paid in commissions and the outputs ( the addresses that receive the bitcoin). So, the owner of the inputs has to do it sign the transaction; philosophically, this is the owner of the funds saying, “I own this bitcoin and I authorize this transaction”. The transaction is then transmitted to the peer-to-peer network so that nodes can verify its validity.
While there are risks associated with every step of the process of building, signing and transmitting a transaction, signing is arguably the most important as it directly approves the movement of funds. This is where Tapsigner comes in. The card aims to take what’s good about hot wallets –– convenience –– and combine it with what’s good for cold storage –– security –– at a lower price than traditional hardware wallets.
When used with a hot wallet, such as a phone wallet, Tapsigner keeps the transaction creation and transmission processes as the responsibility of the phone while taking on the burden of the signature, providing more security than pure hot storage and more convenience than the traditional cold storage deposit that one would set up for their life savings. It’s the middle ground where more frequent transactions can borrow the security of a hardened cold storage setup.
Compatibility with the software portfolio
Since Tapsigner exclusively signs transactions, it relies on a software wallet. However, not all wallets are compatible with the card.
At the time of writing, users can take advantage of Nunchukthe bitcoin wallet famous for its multi-user approach to multi-signature, for having the Tapsigner as a key to a single-sig, a key in a multisig, or both. Like any private key, the card can be used in many ways with different wallet structures.
Software wallet options other than Nunchuk will be available soon, and probably the next to become fully compatible with Tapsigner is Hexa Wallet. The popular BlueWallet currently has an open PR to merge NFC capabilities into the design.
Enter among the weeds
Tapsigner comes without private keys. The card leverages the Bitcoin cryptographic library in its secure element to generate the keys before first use with the help of the software wallet. The user can let the wallet provide entropy (randomness required to create a “good” private key) or alternatively provide it himself. The card combines the entropy provided with the secret entropy, which it collects by itself, to actually generate the keys in the Tapsigner.
The private keys generated by the card comply with BIP 32 instead of BIP 39. In other words, the card adheres to extended private keys (XPRV) instead of the now popular mnemonic phrases. In practice, this means that users interested in backing up their private keys will not be able to store their backup as 12 or 24 words; instead, an encrypted backup of the private key file is required.
When the user requests a backup of their private keys, Tapsigner encrypts the keys with the 16-byte key printed on the back of the card. Therefore, to recover the wallet, the user will need the encrypted private key file and the decryption key printed on the back of the Tapsigner. If the card is lost, the user can simply use these two data to recover the funds. (So, it might be worth writing the key on the back of the card on paper.)
Although the software wallet may require the user to save the file to cloud storage, it should be noted that symmetric encryption, used in this process, is not as brute-force resistant as asymmetric encryption. While the potential for compromise is still low, users have an incentive to store the backup file offline and protect the encryption key.
Other (future) contenders
Other entrepreneurs and companies are also interested in connecting cold and hot rooms to find the best of both worlds. Jack Dorsey, the tech billionaire who co-founded Twitter and the financial services firm Block, formerly known as Square, is perhaps the most famous.
Block announced plans to build its own hardware portfolio in October 2021, and earlier this year detailed what its approach would be like. The plans include a mix of software and hardware products, which the user can leverage to achieve their optimal balance of security and convenience.
Block will create a mobile application and become the primary interface for customer interaction, while the hardware wallet will be a simple screenless NFC device with fingerprint authentication used only to sign larger transactions on the app.
However, there is still no clear timeline of when Block’s product might be released.