Are hardware wallets the future of bitcoin security?
by Helga Danova | Jun 25, 2014 | Crypto News
Although Bitcoin has gone through quite a bit of growth since the days of MtGox and Silk Road, the fact of the matter is that there are still some issues facing this digital currency when it comes to mainstream adoption. One of the main points of failure right now seems to be security of Bitcoin wallets. Whether you’re talking about a centralized service that holds bitcoins for other people or a user holding their bitcoins on their own computer, there is simply too much that can go wrong when it comes to the security of one’s coins. The best method of storage is the cold variety, which means the private keys are not allowed to touch an Internet connection. Although paper wallets are viewed as the main option for this kind of storage right now, it seems that hardware wallets could offer an easier, simpler option for the average user.
Different Options in Hardware Wallets
The idea of a hardware wallet has been around for quite some time, but it’s taken a few years for these kinds of devices to come to market. TREZOR is the most well-known hardware Bitcoin wallet, and they’ve only recently sent out devices to the individuals who decided to preorder the small USB wallets. There are also future potential wallets being developed by Butterfly Labs and a team known as PRISMicide, but we’re definitely still in the early stages of making sure these kinds of devices can actually be secure. Mike Hearn was one of the first people to receive his TREZOR wallet in the mail, and tech-savvy individuals such as him will be the ones who are given the job of testing the security of these hardware wallets.
Secure Bitcoin Wallets in the Browser
Although it may seem inconvenient to store your bitcoins on a separate hardware device, it shouldn’t be much of a problem when the TREZOR or any other hardware wallet is synced with a wallet browser plugin. Many people do not see the current browser wallets as secure options right now due to the large number of different vulnerabilities that are still available for Firefox and Chrome. Having said that, a compromised browser or computer does not become an issue when the private keys are stored on a completely different device. The process of sending a transaction does not become that much different when using one of these devices, and it can probably be compared to a form of two-factor authentication more than anything else. Making Bitcoin both more convenient and secure at the same time is definitely a serious problem right now, but the combination of hardware wallets with browser plugins seems like it could be a viable solution over the long term.
Multi-sig Addresses Enhance Security
Multi-sig addresses are another option when it comes to managing risk on Bitcoin payments, and many respected members of the Bitcoin community believe that these kinds of addresses will have a large role to play in the future of Bitcoin’s adoption by the mainstream. One of the main issues that comes up with this kind of security is that it will usually involve another centralized third party to secure large amounts of bitcoins. For example, a user may wish to automatically receive a call anytime they need to make a payment over $1,000. The payment would not be able to go through until the transaction was signed by both the user and the third-party multi-sig address provider. This increases overall security on the one hand, but it also kind of defeats the entire point of Bitcoin in the first place on the other hand. After all, you aren’t supposed to be having someone else control your finances in the Bitcoin ecosystem.
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