Gem Partners with Elliptic for Insured Storage of the Third Key

Bitcoin Magazine
Gem Partners with Elliptic for Insured Storage of the Third Key

Elliptic and Gem have announced a new partnership today that will involve Elliptic acting as a trusted and independent third party for the purposes of securely storing the third (backup) private key used on the Gem platform. In the past, multisig wallet users have been in control of their own backup private keys, but this new offering from Gem and Elliptic could offer a higher level of security for individuals who do not wish to take care of their own backup solutions. Up to this point, Elliptic has been an insured bitcoin storage provider for a variety of banks and exchanges who need to protect their private keys, so choosing them as the custodians of backup keys for multisig wallets seems like a wise move by Gem.

An explanation of the third key

Over the past year or two, it has become clear that multisig wallets are the wave of the future. Gem CEO Micah Winkelspecht clearly understands this point, which is why his company has been working to allow developers to create the most secure multisig wallets via Gem’s API. With this new setup involving Elliptic, Gem will not be in control of more than one private key. Instead, one private key each will be held by the user, Gem and Elliptic. Both Gem and Elliptic believe this solution provides a higher level of security than the traditional multi-signature wallets created through a single provider.

Insured third-key storage

Perhaps the most unique feature of Elliptic as a third-key custodian is the fact that they’re able to offer insurance against unauthorized use of that third key. When clarifying exactly what this insurance policy covers, Elliptic Analyst Nathan Jessop told Bitcoin Magazine, “We are insured against losses due to unauthorized use of the third, backup key that we hold – this covers both criminal and accidental loss.”

When speaking to the importance of insurance for the third key in a multi-signature wallet, Elliptic CEO Dr. James Smith explained:

“At Elliptic, our focus is on bringing bitcoin to the enterprise by developing secure and convenient products and processes. By combining Gem’s API platform with our insured and accredited key storage service, a new bar has been set for multi-signature wallet security and usability.”

A new standard for multisig wallets?

It’s clear that both Gem and Elliptic believe this is a huge leap forward for multi-signature wallets and bitcoin in general. As Gem’s Winkelspecht noted:

“Now clients can rest easy knowing that even if they lose their private key, they can rely on two independent parties to secure their assets. Elliptic is the most trusted name in private key storage and our tight integration means that there is no single point of failure for Gem’s multi-signature wallets.”

Elliptic’s Jessop agrees with Winkelspecht’s assessment of the new partnership, and he also added:

“I believe this model will become more common, although it’s important to point out that it’s not just about the multisig scheme – the security and controls of the parties holding keys are still important. Elliptic combines insurance with accreditation by KPMG to the same standards as a custodian bank.”

In the future, Elliptic also plans to provide this sort of private key storage for alternative assets that are tracked via the blockchain. Over the long term, Jessop noted that the company plans to focus on secure storage, asset transfer and an auditable chain of ownership. Jessop also mentioned that the combination of their accreditation from KPMG with their insurance offering has led to “significant institutional interest.”

Photo: DSC02405 / CC BY 2.0

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Bitcoin Core Developers Disagree on Proposed Block Size Increase to 20MB

With the current one-megabyte-per-block limit, the Bitcoin network can process only a few transactions per second, which could strongly limit the ability of the network to handle high transaction volumes if the adoption of bitcoin payments grows.

Lead Bitcoin developer Gavin Andresen is persuaded that the best solution to the problem is to increase the maximum block size, and has developed code for a proposed Bitcoin hard fork that would allow any block with a timestamp on or after March 1, 2016 to be up to 20 megabytes. “I believe this is the simplest possible set of changes that will work,” Andresen says.

In a post titled “Why increasing the max block size is urgent,” he argues that if the proposed solution is not urgently implemented the Bitcoin network will become oversaturated, and people might just stop using bitcoin because transaction confirmation would become increasingly unreliable. “Limit the number of transactions that can happen on the Bitcoin blockchain, and instead of paying higher fees people will perform their transactions somewhere else,” Andresen says in another post.

The MIT Technology Review just weighed in on the debate with a review, titled “Leaderless Bitcoin Struggles to Make Its Most Crucial Decision,” of the pros and cons of the proposed hard fork. Author Mike Orcutt notes that not everyone in the community of users of the Bitcoin software – which includes miners, developers, and a growing number of startups – agrees that Andresen’s proposal is the best path forward.

For example, some critics argue that Andresen’s solution could lead to a dangerous “centralization” within the mining community, which would favor bigger, richer mining operations. A counter-argument is that it’s already too late: Bitcoin mining is already centralized and dominated by large, professional mining operations, and totally out of reach of individual miners and grassroots pools. This debate reflects the tension between two increasingly conflicting aspects of Bitcoin – the DIY, grassroots spirit of the early adopters, and the mainstream need for much more streamlined and efficient operations.

Other critics, including Bitcoin core developer Pieter Wuille, argue that right now there are just too many unknowns about the consequences of increasing the block size to 20 megabytes. Wuille hints at “things we don’t even know of that could break,” and says that a smaller increase at first would be less risky.

As for all important choices in technology development, there is no clear-cut ideal solution that fits all needs. On the contrary, different requirements must be prioritized and an optimal trade-off must be found. An interesting issue is who gets to make the decision. Princeton computer science professor Arvind Narayanan observes that the core developers are the only ones with the power to change the code, and therefore they will probably make the decision themselves if they can reach consensus – which is not the case at the moment, since at least one of them is against the proposed hard fork.

The global issue is governance and leadership in Bitcoin technical development, which has been mostly “leaderless” as the title of the MIT Technology Review article emphasizes, with the Bitcoin Foundation unable to provide effective governance. Recently, Andresen and other Bitcoin Core developers joined the MIT Digital Currency Initiative, which is now beginning to assume leadership in the Bitcoin development space.

Brian Forde, director of the MIT Digital Currency Initiative, is offering to co-host an open forum for discussions aimed arriving at a rough consensus, The Wall Street Journal reports. “How this decision is made will be a good example of how the open and active community of developers, entrepreneurs, miners, researchers and users will continue to collaborate on major changes to Bitcoin core,” he said.


Photo background by Freepik.

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