Bitcoin can be a very attractive environment for scammers and criminals of all kinds, as recent years showed us.
According to a CipherTrace report, thieves and scammers managed to steal more than $4.26 billion in cryptocurrency from exchanges, investors, and users, in the first half of 2019 alone. In a recent July hack, Japanese-licensed exchange Remixpoint lost around $32 million to hackers. All these funds won’t be recovered and handed back to their rightful owners, unfortunately.
Indeed, if exchanges can’t cope with the massive wave of crypto thefts, how can a single user who is not quite tech-savvy?
Nevertheless, the future might bring more safety for both exchanges and Bitcoin users alike with the implementation of a new security technology called Bitcoin Vaults.
Covenants & Bitcoin Vaults
The term ‘Bitcoin Vaults’ was first introduced to the community in 2016 with the ‘Bitcoin Covenants’ paper written by Malte Moser, Ittay Eyal, and Emin Gun Sirer.
They proposed an extension of the native Bitcoin scripting language & introduced covenants which in property law is a contract that restricts the use of land for certain purposes. Similarly, covenants would actually impose optional restrictions on BTC transactions.
Enabling such restrictions could also serve security well by creating secure transactions called ‘vaults’, as the three explained in their paper.
In simple terms, besides the all-powerful private keys that let any user control the funds linked with those keys, Moser, Eyal, and Sirer proposed a new security step, a recovery key that could cancel out any outgoing transaction from a compromised wallet to another BTC address. To do that, the transaction has to be delayed, thus it must not be broadcast & included in a block immediately. The delay mechanism would prevent the attacker from moving funds instantly.
Moreover, the delay mechanism would also be useful in the case both the private & recovery keys are compromised. The real owner of the BTC funds could actually delay the transaction indefinitely, leaving the attacker unable to transfer out the stolen goods.
New Security Mechanism Proposal
Bitcoin Vaults as described by Moser, Eyal, and Sirer would require a soft-fork, however. This may not be the case anymore.
Last month, a Bitcoin developer revisited the Covenants paper and thought of a new system that would enable a security mechanism very similar to the vaults.
The system doesn’t require any specific software upgrades, as Bryan Bishop explains in his re-signed ‘Bitcoin vaults with anti-theft recovery/clawback mechanisms.’
To make the delay period work effectively, a public observation scheme must be put in place. If a vault is compromised and accessed through its private keys, for example, a ‘watchtower’ could alert the real owner that someone is about to transfer his/her funds. The owner could then act accordingly & discourage the attacker from the attempt to steal the funds.
As an ultimate solution, the owner could also ‘nuclear abort’ the vault & ‘burn’ his funds in case of emergency, therefore losing the coins forever. Such mechanisms could eventually discourage any thefts.
What do you think? Would such a security system be reliable? Is such a proposal a step forward towards increased Bitcoin safety? Share us your opinion in the comment section below!
Images courtesy of Wikimedia & Pxhere.