Friday, March 6, 2015

Bitcoin and Blockchain Wallets

Bitcoin Wallet Hardware

Bitcoin Wallet Technology

To own crypto-currencies, interact with decentralized ledgers or trade bitcoin, you need a wallet. Wallets have a variety of offerings that are categorized based on how the wallet is accessed. The level of security offered by a bitcoin wallet service are different than traditional payment services. However, surveys show consumers feel bitcoin wallets are more secure than mobile payment services like ApplePay. Bitcoin wallet risks are managed based on the level of comfort the user feels towards interacting with blockchain transactions. New users will gravitate towards wallets that are more transparent about how their funds are managed. Read more below to learn about various wallet offerings, and what to research when choosing your next wallet service.

Wallet Security Features and Services

Private Key storage is an important factor when choosing a wallet service to interact with a blockchain. Transactions on a blockchain are authorized when two users share their public key and then verify the transaction with the signature of their private key. Private key storage is offered in digital and physical forms. Wallet services, like Coinbase, interact with your currency like a traditional banking company. Coincase holds your funds, but is susceptible to single access failure, and no transparency of actual ownership of Bitcoin. Other wallet services offer complete control of all your funds, but leaves the risks of handling funds on the owner.

How Bitcoin is moved in a blockchain transaction

How change is handled in blockchain transactions is a unique feature interacting with blockchain technology. When two users exchange funds in a transaction, the 'change' leftover is sent to a newly generated bitcoin address which does not link back to the originating wallet. This was problematic, as the amount of addresses were limited in early bitcoin clients. After a predetermined limit, transactions could be linked to individual wallets. Deterministic wallets are designed to generate an unlimited amount of addresses that can be stored in a variety of ways.

There are two main types of deterministic wallets:

Type 1 Deterministic Wallet: Generates a single private key from an originating address but does not offer a Master Public Key.

Type 2 Hierarchical Deterministic Wallet: A Master key generates a child key that features a 128 bit value that is presented to the user as a 12 word mnemonic. This mnemonic is created after 100,000 rounds through the SHA256 cryptographic hash function.

Ease-of-Use is an important quality of wallet service and is increased as the amount of steps required to complete a transaction decreases. Some wallets require additional devices to be able to interact with their products, and other wallets only require a single device. Many companies are attempting to decrease the level of complexity when completing transactions and may also increase security risks. Middle man attacks are still prevalent when interacting with devices that can connect to an outside network, but your funds are less likely to be stolen if the private key is stored correctly.

Airbitz: Mobile/Desktop Wallet and Directory

Integrated mobile bitcoin wallet and Business Directory. Wallet users can send, store and receive bitcoin.

Features:

Wallet and Client Encryption

Cloud Back-up

Synchronization across devices

HD (Hierarchical Deterministic) Wallets

Low Energy Bluetooth

Desktop and Mobile Wallet

Free on iOS and Android Devices

Coinbase: Desktop/Mobile Wallet

Cross-platform mobile wallet and exchange service. Users can Buy, Sell, Trade and store bitcoins.

Features:

Wallet and Client Encryption

Coinbase API allows creation of native applications to use on Coinbase

Desktop and Mobile access

Direct Purchasing of Bitcoins (After a lengthy approval process)

Most widely used platform to trade bitcoin

Cloud Storage of currency

1% Transaction Fee applied to exchanges

Case: Hardware Wallet - CoinDesk Article

Biometric Bitcoin Wallet using GSM and SIM cards to complete transactions. No external connections to device. Uses inductive charging.

Features:

GSM and SIM card hardware: Requires no Wifi connection and Works Worldwide

Built in micro-camera to scan QR Codes

HD Multi-Sig Wallet

Multi-Source key protection(Local on Device, Server Encrypted Key Storage, Biometric Security)

Transactions require 3 steps total on the hardware device (Click, Scan, Swipe)

Instantly connected to transactions with no additional software required

No monthly fee

Launching: Spring 2015

The Ledger: Hardware Wallet – Bitcoin Magazine Article

USB Device that can sync with wallet devices, and uses a card to verify offline purchases

Ledger Wallet Review by Coindesk

Features:

Three companies under the hood: BTChip, Chronocoin, La Masion du Bitcoin

Cost - €30 Launched: December 2014

HD Multi-sig Hardware Wallet

Small USB Flash Drive with Common Criteria EAL5+ certified chip

Relies on secondary device (PC/Mobile) to set up and execute transactions

Security Card provides numeric code to validate transactions offline

Requires Google Chrome Browser

24 Word Mnemonic to recover or QR code to recover wallet card

CoolBitx: Hardware Wallet – BitcoinIST Article

Interactive Hardware Wallet with One Time Password system

Cold storage device advertised as a solution to offline bitcoin transactions.

Features:

NFC (Near-Field Communication) and Bluetooth LE (Low Energy) Communication module

SE (Secure Element: Common Criteria EAL5+ certified) chip

E-Paper Display (7:1 contrast ratio and wide-view angle)

Rechargeable Battery with 2 Year expected life of battery

One Time Password feature

Services Explained

Altcoins - A token reward set by a blockchain developer for distribution between users for various services. The value of each token is in relation to the value of the data that can be accessed with that token.

Signatures - a cryptographic signature is a mathematical mechanism that allows a user to prove ownership. On a blockchain network the token, and the wallet it is associated with, are linked by an algorithm. The software that interacts with the blockchain will sign the transaction with the private key of the parties interacting in the transaction. Private keys are a hash signature to show absolute ownership of the contents of the associated wallet.

Miners - Hardware in a blockchain network that is rewarded for processing services which can include transaction requests, synchronizing, and proof-of-work (mathematical) calculations. Miners can connect to their blockchains via various software and hardware.

Proof-of-Existence Services - Convert data files into a cryptographic hash algorithm (SHA256 specifically) which represent the file (as a whole) when the hash was created. The hash that is created of the document is unique to the contents of the document, and any adjustments to the document will result in a different SHA256 hash and would invalidate the transaction, rejecting the change. Website

Smart Contracts - Multiple inputs are placed into a single transaction. Those individual inputs can be independently signed by multiple parties and once conditions are agreed upon. The single output of all the inputs generates a unique hash. These contracts, located on a blockchain, can be used for multiple functions. Example: Assurance Contracts & Wills

Block Explorer - a service that provides an interface to interact with blockchain information. This service is a third party interaction to the client itself.

Private Keys - Every bitcoin wallet contains at least 1 private key. A private key grants the ability to spend the bitcoins attached to a transaction. Once a private key is used it can no longer be used again to spend those bitcoins.

Genesis Block - The first block, or ledger, created on a blockchain.

Oracles - Scripts or Code written to determine if a mechanism has passed or failed certain parameters. Oracles are implemented as a test condition and for verifying outputs.

Escrow Services - Perform duties as a representative of a particular account. Escrow services dealing in cryptocurrencies often offer private and public key representation.

M-of-N - N is the total amount of private keys assigned to validate a specific address. M is the minimum number of N keys needed to validate a transaction from that address. A 2-of-3 transaction requires 2 of the 3 private keys to validate the transaction.