Coinbase’s Paper Encryption Keys Shows Why a Physical Cryptocurrency Vault is Ideal
Coinbase’s Paper Encryption Keys Shows Why a Physical Vault is Ideal
News outlet, Wired, shared some of the reasons why physical vaults are needed in the crypto sphere, starting with its physical constraints. The entire analysis was supposedly based on Coinbase’s recent tent event, where the crypto exchange generated and printed several paper-version encryption keys.
The first reason comes from a cryptocurrency’s “environmental footprint”, as we’ve all heard of Bitcoin’s energy consumption being equivalent to five percent of all existing resources. The second and most popular argument is that offline storage, away from online in a hardware form, is appropriate.
With this being said, Wire mentions Coinbase’s recent ceremony, where the crypto exchange explained in detail the specs of generating and printing encryption keys on a paper. Coinbase has a user base of nearly 20 million, and their next endeavor is to bring in institutional money that has been sitting on the sidelines since 2018.
According to the Founder of Coinbase, Brian Armstrong institutional investors are interested in the crypto sphere, “but they need a qualified institution to act as a custodian.”
Since Coinbase’s Faraday Tent went up, several thousands of keys have been printed out. According to Coinbase’s Head of Security, Philip Martin, “it takes most of a day and we’re in there [tent] until it’s done.”
Interest in crypto custodians has increased over time, as Goldman Sachs’ was reported as potentially getting involved in the likes. Coinbase has already been working on its respective custodian services and Japanese Investment firm, Nomura has also been offering said services since May.
The Coinbase team trusts that “key-generation” will be THE solution to fraud and theft. A security researcher, Nicolas Weaver was also quoted in addressing cryptocurrency problems, namely that of storing tokens online. He said that online storage is not truly safe, the digital asset is “incompatible with modern financial fraud mitigation.”
Process of Creating Encryption Keys
As for how the keys are generated and printed, it was reported that a “Linux-based operating system” was synced via a USB drive. A custom software was used to generate the encryption keys, which serve as the manager of user holdings.
Each generated key is then split into more QR codes and stored again on an Apple laptop. The reason for doing so is simply to facilitate instant printing. To prevent leakage of data, the computer in which the keys were generated will be destroyed.
The printed QR codes will be collected in a binder to prevent scammers from trying to breach the system. Martin shared that Coinbase’s recent effort are based off of “lessons from the past about physical security and blending them with well-structured cryptography.”
As for users who want access, funds will fall into one’s account anywhere between one to two days. The steps involved are as simple as logging into Coinbase’s website with a USB key, and requesting a transfer. To ensure the identity of the user, Coinbase will request video calls. Finally, their employees dubbed “sages” will verify the request and notify a team of “librarians” who will be responsible for accessing stored paper to scan the QR code.
— Coinbase (@coinbase) August 29, 2018
What are your thoughts on a paper QR code system? Is the system necessary to protect privacy and security of one’s holding, or does it seem tedious? Let us know below.