CXOToday has engaged in an exclusive interview with Thomas Templeton, Hardware Lead at Block Inc.
Can you explain the concept of self-custody in the context of cryptocurrency and why it’s important for Bitcoin users?
Bitcoin, as well as other cryptocurrencies, are stored in digital wallets and they can mainly be custodial wallets or self-custody wallets. One big difference between the two is ownership and control.
With a custodial wallet, it’s the company behind it -the custodian- who owns the keys that give access to the wallet so the customer is entrusting the custodian to manage their bitcoin for them. This can be convenient, but it carries several problems:
- You put all your trust in those companies and they set the rules on what people can do with their money, including limiting movements or high fees
- Letting a custodian hold and control your keys increases the risk of mismanagement of funds as we’ve unfortunately seen already
- A custodial platform represents a single point of failure against hackers putting customers funds in a higher risk
Differently, with self-custody, it’s the person who owns the bitcoin who also owns the keys and decides who, when and how they can access those bitcoin. Self-custody means real ownership and enhanced security, but it also usually means holding onto a long seed phrase that if anyone sees they can take your money and if you lose it, it means you lose your money. Also, most self-custody wallets existing until today are hard to use and require a certain level of technical knowledge. That’s a lot of personal responsibility, and products like Bitkey aim to reduce the burden of self-custody making it very easy while leaving customers in control and bringing great financial products to a global audience.
What are the primary advantages of using Bitkey over other self-custody solutions available in the market? How does Bitkey enhance the security of users’ Bitcoin holdings compared to custodial wallets? Also, one of the main challenges of self-custody wallets is their complexity. How does Bitkey address these usability issues to make self-custody more accessible to a broader audience?
The mission behind Bitkey is to widen access to self-custody and true ownership and to empower people around the world to truly own and manage their bitcoin easily and safely, unlike traditional self-custody solutions that are too complex to use for many people. Bitkey combines robust security and recovery options, with a simple customer experience that puts them in control of their money, aimed at bringing more people to self-custody.
Bitkey uses a 2-of-3 multi-signature design that doesn’t require customers to remember long passwords or seed phrases: it uses three keys to secure bitcoin, and any two keys working together are needed to move bitcoin or approve other security-related actions like initiating recovery or modifying security settings.
- Two keys are in customers’ hands: one is in the mobile app, which enables customers to make bitcoin transactions easily on the phone, track their balance and manage security preferences; and the second customer-held key is in the hardware device, securely stored offline. The hardware key serves two main purposes: an extra layer of security to co-sign money movements (based on a customer-set limit); and enables recovery when customers lose their phone.
- A third key is on Bitkey’s server and is used for only two things: 1/ to help customers move bitcoin with just their phone for the transactions they choose to make on the go without their hardware device, and 2/ to help customers recover their wallet if they lose their phone or hardware – or even both.
Importantly, because Bitkey only has access to one, not two or three keys in this 2-of-3 multi-signature wallet, Bitkey cannot access or move a customer’s bitcoin without them. This puts customers in true control of their money, while giving them peace of mind that they can recover their money if they lose something
Additionally, Bitkey’s unique recovery tools cover almost any life scenario:
- If customers lose their phone (and thus the mobile key), they can regain access to their wallet using Cloud Backup, which uses the hardware device to decrypt an encrypted backup that was previously automatically stored by the Bitkey app in their cloud.
- If they lose their hardware, or both the mobile key and cloud backup, they can ask Block to help recover their funds using the key stored on Block’s servers, which comes with a 7-day waiting period where a customer will receive notifications on their phone, preventing attacks as they will be able to stop a recovery process that has not been initiated by them (with the help of Block’s key).
- If they lose both the phone and the hardware, their Trusted Contacts will help them regain access to their mobile key and they can then order and set up a new hardware device.
- If the Bikey app is no longer available, or the customer no longer wants to rely on Block or Bitkey to hold their bitcoin, an Emergency Access Kit is available for them to take their funds off Bitkey to another wallet without the involvement of Block.
The combination of these features keeps customers safe from a wide range of ways to accidentally lose their bitcoin, but without requiring customers to take a long time to set up their wallet or to safeguard a long password – that’s why we say Bitkey is bitcoin that’s easy to use and hard to lose.
How does Bitkey simplify the process for users who are new to Bitcoin and self-custody, helping them get started and manage their assets effectively, and how do you envision products like Bitkey driving broader Bitcoin adoption and network expansion?
I’d highlight an easy and familiar user experience, including a quick onboarding, as well as accessible recovery features and the integrations with exchanges (MoonPay, Coinbase and Cash App, and more to come) that provide a seamless and secure transfer/buy bitcoin and move into self-custody.
Additionally, we chose to include a fingerprint sensor to unlock the hardware and secure and confirm transactions because it offers security and ease of use at the same time, as well as peace of mind (customers don’t need to worry to remember long passwords).
Regarding self-custody adoption, it’s all about enabling more financial opportunities and making it easier for the people. Self-custody helps facilitate an open economy, and an open economy means more opportunity for more people, including businesses being able to accept transactions regardless of where the buyer is located, or people being able to transact with others on the other side of the world with less dependence and burdens than with traditional financial instruments.
Balancing security and usability are often a challenge in self-custody solutions. How has the Proto team at Block Inc. approached this balance in the design of Bitkey?
One thing we do differently at Block, and we’ve done so with Bitkey from the beginning, is thinking about the customer from the ID and user experience, and then we think backwards from there when building the products. Design is more than just pixels, it’s how something works and it has to make sense for the people that will be using it. We tirelessly think about what the customers care about, the experience that is needed from the customer’s pain points and how we want them to use our product.
For a broader adoption of self-custody and bitcoin, products with the right mix between security and usability are the key. People need solutions that give them peace of mind to secure and hold their bitcoin, while they don’t require a high technical level or to remember a complicated long password. And we believe Bitkey is one of them, and that’s also what we are hearing from our customers and the community.
Another thing I’d like to highlight is the security & usability layer of Bitkey’s integrations with exchanges. Through that integrated experience, we’ve worked with our partners (at the moment, Cash App in the US and Coinbase and MoonPay globally, and more to come soon) to ensure customers can safely withdraw their bitcoin from those custodial platforms to the Bitkey wallet immediately after purchasing them – ensuring they benefit from what exchanges do best (converting fiat currencies to/from bitcoin) while ensuring that customers truly own their bitcoin in the self-custody wallet we offer through a seamless transfer experience, avoiding the need to copy/paste addresses from one app to another, and making the experience more secure.
Are there any upcoming features or updates for Bitkey that you can share with us?
We are constantly exploring, building and looking to add features and security improvements to Bitkey. We listen to our customers and incorporate their feedback into our roadmap when possible, and we are excited for the months coming when we will have more custodial partners added for a wider customer choice, as well as new features to add value to our customers’ journey with bitcoin.
The post Understanding Self-Custody in Cryptocurrency: Why It’s Crucial for Bitcoin Users and How Bitkey Simplifies It appeared first on CXOToday.com.