Jack Tao’s story is both interesting and relevant for the state of global finance. After working at Morgan Stanley for 11 year, he decided to leave the Wall Street glory behind in order to join the Bitcoin revolution.
Jack and some other colleagues from big legacy financial firms have joined forces in order to create Phemex: a Bitcoin exchange which enables universal access to investments and grants users great privacy. As of now, Phemex operates without any form of KYC and is looking into ways of maximizing the sovereignty and control that users have over their funds.
During this hour-long episode, you will get to find out more about Jack Tao’s experience in finance, his vision for Bitcoin, and the ambitions of Phemex. If anything, it offers a fleeting glimpse of the future of finance and the aspirations of former Wall Street executives to build a more inclusive and universal financial system where everyone has access to the same services irrespective of the value of their investment portfolio.
Thanks to Phemex, season 4 of the Bitcoin Takeover Podcast has been the best in the series so far: with improved audio quality, more consistency, and a unifying central theme.
The deal with Phemex is about offering ad space, as well as having a conversation at the end of the season in a special episode. This recording with Jack Tao a great opportunity to express gratitude for the excellent 10 episodes that have been added to the series. It’s also a chance to meet the sponsor and better understand his plans and intentions.
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Sign up today at phemex.com/bonus and receive a bonus of up to $72.
Please keep in mind that this is just an ad for a sponsor of this show. It’s not meant to serve as financial advice, and you’re responsible to do your own research before buying anything and act according to your own decisions. Embrace your financial sovereignty with agency and precaution.”
When Rodolfo Novak (nvk) designed the Coldcard Wallet, he considered his own security needs and expectations. The device, which has currently evolved to the third generation, makes no compromises in terms of privacy and security.
Yet in the quest for security and privacy, the Coldcard wallet turned out to be the least friendly hardware wallet on the market. In its current phase, only seasoned bitcoiners who run their full nodes and are comfortable with third party wallets like Electrum and Wasabi are prepared to unlock the Coldcard’s full potential.
In this interview, Novak gets to have the final word on some of the statements that have been made throughout the season. He addresses Slush’s criticism of physical security, Peter Todd’s comments on PSBT, Ledger’s categorization of security element chips, KeepKey’s focus on securing a trading platform, and Cobo’s focus on the needs of Chinese miners.
Also, Rodolfo Novak provides details on his work on CK Bunker and how it improves on the existing Coldcard security design.
27:10 – Is going Bitcoin-only more secure and profitable?
30:13 – Why altcoiners don’t care much about security
32:17 – Different types of bitcoiners have different kinds of security expectations
34:45 – Can hardware wallet manufacturers keep track of the devices they sell to dox you or steal your coins?
37:16 – User interface wallets that potentially track you
39:30 – Is a KeepKey that you run via Electrum as secure as a Trezor?
40:10 – Is PSBT really safe?
45:03 – Can you check your balance on a Coldcard?
46:50 – Coldcard’s opsec
49:00 – Does Coinkite store any data about customers to link the serial number with the invoice?
50:28 – Coinkite’s merchant processor is proprietary
51:17 – Rolling the dice for more randomness during seed phrase generation
53:11 – What is CK Bunker?
55:05 – Shamir Backup on Coldcard?
56:12 – What is next for the Coldcard?
58:42 – Is it safe to never upgrade your Coldcard and keep it as cold storage?
1:00:56 – Secure elements designed for Bitcoin
1:01:30 – Is the Coldcard comparable with a dedicated general-purpose computer?
Special thanks to LXMI and Phemex for sponsoring this episode!
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If you’re not trading, it’s recommended to move your coins to a hardware wallet or some other form of cold storage, and in this episode, you’re about to find why.
Please keep in mind that this is just an ad for a sponsor of this show. It’s not meant to serve as financial advice, and you’re responsible to do your own research before buying anything and act according to your own decisions. Embrace your financial sovereignty with agency and precaution.
Phemex Ad:
“Phemex is a Bitcoin exchange with derivative trading options which focuses on speed, robustness, and maximum uptime. Built by former Morgan Stanley executives, it manages o bring simple and accessible Bitcoin trading. In 2020, Phemex will also add S&P 500 stocks, stock indexes, FOREX, commodities, and more.
Sign up today at phemex.com/bonus and receive a bonus of up to $72.
Please keep in mind that this is just an ad for a sponsor of this show. It’s not meant to serve as financial advice, and you’re responsible to do your own research before buying anything and act according to your own decisions. Embrace your financial sovereignty with agency and precaution.”
This might be the last episode of Season 4, the 10th episode, which is about the Coldcard wallet. And my guest today is Rodolfo Novak who gets the privilege of having the final word on this. I’m not sure if I’m going to do any more episodes from this season, but if I do it will be small players. So of all the big ones, Coldcard gets to have the final word, which is quite an interesting position because there is a lot of reacting to do to what other people have said and I have sent some questions to Rodolfo to synchronize and make sure that everything is fine to discuss. And I’m really excited about this. So hello Rodolfo.
Yeah, I’m really happy that I got to convince all the big figures in the hardware wallet market to get on the show and not only mention what they promote about their products, but also what they think about the general state of the hardware wallet market, how they envision the future of private key security, and what they think about cold storage. My first question for you is pretty much the same one that I asked to everybody else who was on the show. Why would anyone use a hardware wallet as opposed to anything else like a brain wallet or paper wallet or some other DIY solutions?
For the average person, or even the advanced user, having a very simple electronic device that is capable of doing the Bitcoin operations you need and not being on a computer infested with viruses is a big deal. So even if you consider a Raspberry Pi, not connected to anything, with the right software in it—a hardware wallet—you’re already winning big-time. Your computer, especially nowadays, it’s just so complex, so full of stuff that it is impossible to really secure it unless you are a true expert. So having a device that’s made for it will remove a lot of the low hanging fruit regardless of the quality of that device.
Yeah. Also a lot of people have lost their Bitcoins in the early days because they relied on their hard drives with the Core client or because they just didn’t think it would be valuable. So they didn’t care at the time. But I’m pretty sure—
Yeah, you’re getting for free all the tested and best practices of hardware wallets. We have all these competitors, all these vendors working on hardware wallets and everybody’s improving the whole process of doing Bitcoins safely. So when you get a hardware wallet, you’re inheriting all these best practices for free.
Yeah. And there’s a lot of open source software. You can even choose which one you want to use. Slush even told me that there are over 50 clones of the Trezor on the Chinese market, which is interesting.
It’s still interesting. And I remember writing an article for Bitcoin Magazine about how you published all the documentation to build your own Coldcard.
That’s right. Everything on Coldcard is available for you to buy off of any parts reseller. And the firmware is fully open source and the hardware schematics are also fully open source. So if you wanted to prove to yourself that what we say we do, we do, you could just rebuild it yourself and that should suffice your curiosity.
And it’s not just about curiosity. It’s also about people in countries where they cannot order from Coinkite, which is based in Canada, maybe that they live in North Korea or something and they want to stay safe. And I don’t know how they can get the parts. Maybe they can build them themselves?
Yeah. I think that’s the most useful part. There’s also of course the auditability of hardware and software because people can verify that you’re honest about your marketing and stuff like that. But speaking of this, why is the Coldcard special? Why do you think people should opt for the Coldcard as opposed to something else?
Coldcard was a product of our own needs. Neither of the main vendors were building something that would suffice our preferences and security requirements. So we’ve decided to make it ourselves. There was enough interest that we put it on the market. And people seem to like it, it’s a device that uses a secure element, but it’s open source. It has proper backup set ups, it works cold, it has a dice features, it has address explorer features. It’s got a ton of stuff that I’m not going to wait for vendors to come up with. So we’re just building the thing that we needed. I think that’s the best way to make a product.
I agree. I remember when I first met you that you told me basically that you built the Coldcard for yourself and adapted it to the needs you thought that you might have according to your own mindset of security. And then it caught on as a commercial good that can be sold on the market. And I guess it’s successful. I see a lot of people who like it on Twitter.
Yeah. We sell a ton of them now. It’s a fairly well-priced device for the amount of features it gives you. The community knows that we keep on adding features and people request things that we often get it done for them. And other systems are also integrating it like Casa, [INAUDIBLE] and all that stuff. So it’s quite amazing it’s only been 2 years and a half now. I can’t remember when we launched it. There is a very robust ecosystem around it and I don’t see the competition still solving my needs, which is kind of interesting. We’re going to keep on going.
Yeah. And before we move on and basically discuss everything about the hardware and the software of the Coldcard, let me ask you a question that has been around since Episode 1 and has become a tradition during the season to ask representatives of hardware wallet manufacturers to say something nice and something terrible or bad about their competition. And the four companies about which I’ll ask you are: Trezor, Ledger, KeepKey and Cobo. You can start with the Trezor and say something nice and something that you don’t like about it.
Trezor was the first to identify the need for an open source hardware wallet and they have good cryptography chops. The problem that I have with it is that one it has not evolved to understand security needs and two it was completely unsafe physically. So it’s a tricky place to be at as a product. Then for Ledger, Ledger is interesting because it is fairly secure. The architecture is a known type of architecture in the chip and PIN industry. But it is closed source and I can’t make myself use a closed source device. KeepKey I believe is a Trezor clone. I’m not super familiar with the guts of it—it’s also closed source—but they do have a beautiful industrial design and I love the little cube or whatever you want to call that shape of the KeepKey. Then I think you mentioned Cobo. They seem to have a very nice industrial design. I’m not super familiar with their architecture, to be able to talk about it.
Yeah. It’s actually interesting because I spoke with Lixin of Cobo and he had nice words to say about the Coldcard and also he was constructive in his approach and I liked that. He works for a company which develops products for the Chinese miners so that’s a niche in itself.
It’s a whole other universe. China is a whole other place for hardware devices and people in China don’t seem to be—at least from the impression I get and I’m told this from others—people are not as concerned about security there for some reason. So it’s interesting.
Yeah. I think I ordered the questions just the right way because I did not anticipate your answers, but the way I sent them to you, the first one is about what Slush said and then what Ledger said and they relate to the criticism that you made about their devices. And I’ll go first with Slush because we did Episode 8 of the podcast and he said that in his opinion he has experimented with a secure element and has some prototypes of the Trezor with a secure element chip, but he came to the conclusion that he cannot make a design that is 100% auditable. And in his opinion, it’s more important to be transparent and chasing physical security in his opinion is kind of an illusion because you have to renew the set up all the time and stuff like that.
Yeah. Let me just get right in there. So that’s super misleading, because, one, Trezor is not 100% auditable because unless you have an electron microscope, you cannot tell what the die of the chip is doing. So you could have had the device swapped, you could have had a bunch of attacks that are advanced, sure, but not fully auditable. So that’s a very bogeyman kind of argument. I don’t think it’s very constructive to the industry because it creates just FUD. And then there is a massive spectrum of secure elements—many flavors. You can have the Ledger flavor of secure elements where it’s a smarter secure element and you run your code inside. That provides a lot of security to you because you have all your code, everything you do, inside the secure element.
Unfortunately those are closed source, so you lose the openness and auditability so that doesn’t work for me. Then you have this other branch of secure elements, they’re extremely dumb. They’re essentially fixed function secure elements. All the code is already pre-done in the die of the secure element. So you can’t really change it. You can only set settings on it. And that’s the chip we use. It’s super simple chip. And we only use it to hold the seed. And we don’t actually even let the chip see the seed. What’s interesting about that is we use an open MCU, just like Trezor does, to do all the Bitcoin operations with our open source code and do the encryption of the seed—also open source—and then put that encrypted seed inside the secure element.
So even if the secure element had a back door or a flaw, which is very unlikely, the secure element still doesn’t see the seed. So you’d still have to break the other MCU, the other open chip, to get the decryption key for that seed. So in our case, you’d have to break two chips to be able to see that seed. And then there’s the fact that the 508—we are using the 608 now—but the 508 already has public data sheets. The 608 requires NDA, but any security researcher that contacts [INAUDIBLE] can get that NDA signed and then do research on it. And also there’s plenty of labs out there that have already decapped the 608 and have full pictures of the die.
It’s such a simple chip that making the argument that 608 is a closed source bogeyman backdoor is insane. It is effectively as open as the MCU used on Trezor and Coldcard. I think it’s important that we focus on physical security because a hardware wallet should be able to offer you more security than a Raspberry Pi. Trezor has no physical security. I understand that’s their idea and they rely fully on the 25th word. I’m not sure that was part of their marketing back then, but it became so after it got owned. Even if it’s a marketing shift, it’s still a very good idea.
It’s still a very good idea to use that 25th word and not rely fully on their hardware. But to me, a hardware wallet needs to withstand a minimum amount of attack. So if you have your hardware wallet sitting on your drawer or something, you need to be able to survive basic attacking. You should be able to survive a maid swapping the device, that you can show the device was swapped so you don’t get a spearfished for your PIN. There is a slew of attacks that could happen that the secure element can help you out with. Even if you have the 25th word, you can still be a spearfished for your PIN. That won’t help there.
So I don’t think you could get away with making a hardware wallet without a secure element anymore. Is a hardware wallet that is as basic as a Trezor still better than a computer with viruses? For sure. You should still use a hardware wallet. But I think that the bar there is too low. I think we need to do better. Right now we’re in the third version of Coldcard and there’s still a lot of stuff I want to do. There are other chips I’m experimenting with, and you’re probably going to see another version of it in a year or two, because it never ends. This is a new industry. We need to make things better. There is no need to stop.
Yeah. Sometimes I think about this situation where you’ve passed through airport security checks and let’s say that you have your hardware wallet in the carry-on bag that you take with you into the airplane. And they make you take out all of the electronic devices and if you don’t, they will just see that there’s something there and ask you to take it out anyway. So they make you take out your laptop, your external battery, your phone and everything else. And I suppose that hardware wallets also have—either batteries or electromagnetic field—that gets emitted and will get discovered in the scan. So you’ll have to take it out. And I’m thinking sometimes can they have any sort of hacking devices that they use just like they have the ones for iPhones to unlock?
Yeah. In the case of Trezor, that’s 100% possible. For about $100, you can build a little box that you stick a Trezor in, and essentially you ROM dump it. So you take the whole memory of the main micro out and then you can try to break that later. But you can take that data out. That is not true for Coldcard and Ledger. We have very good defenses against that. Because we are using secure elements. You could still try to ROM dump. I don’t think it’s fully possible—nobody has provided a proof of concept on our open chip yet. It’s a similar family as the Trezor One, but it’s not the same. We also have more ECC defenses.
Anyways, the thing is that the seed’s still in the secure element, and you get a lot of those defenses as part of the package. Another thing too is if you’re crossing an airport, you probably want your 25th word, or not even take a hardware wallet with you, just take your seed or something. And then when you get to the other place you reconstitute your seed and then your wallet. But those are considerations. You have to walk through all these scenarios where you will have to surrender physical possession of the device either through absence, like the evil maid attack, or presence in a lawful situation where you’re not necessarily being beaten for your PIN.
Yeah, that’s a fair point. But this leads me to a discussion about an article which was published by Ledger a couple of weeks ago, and it was titled, “Not All Chips Are Born Equal.” And in that article they distinguished between their security element chip, which is the ST33J2M0 . And they say it’s the true secure element and what they define the Coldcard chip as is a memory chip. What’s the difference?
You can get into a semantic argument about what is the definition of a secure element or not. So in their definition, a true secure element means that you’re running all the code inside of the secure element. So the 608 was our trick to get secure element security because the 608 has secure element security. So it has side channel attack defenses. It has a decapping defenses. It has a bunch of defenses. Are they not perfect, will somebody find a bug in them? That’s possible. But it’s the same for their chip too. If you have a secure element, it doesn’t mean that you’re infallible. It just means you have audited defenses against many types of attacks that are normally physical in nature.
So you have say, power differential analysis. So people can’t do a side channel read of you calculating things inside this chip. That is true for the to 608 that we use or for the Ledger chip. You have the [INAUDIBLE] cap defenses. It’s the same for us and for them. You have a tripping wires. You have a true random number generator, not just a random number generator. That means it’s an audited random number generator. And you use those to do some of the encryption and some of the communication between your secure element and other chips. So aside from the semantic discussion, the 608 that we use is quite robust. It’s a very good chip. So much so that we went from the 508, which was the previous version, to this new version that has a few more features. And we hope to use the newer version when it comes out that might have other defenses. At the end of the day it does provide security features and the manufacturer itself sells it as a secure chip. So aside from this semantic discussion, I think both of us have different approaches, but the idea is it’s still a secure element chip.
Yeah. Also, the Coldcard was—I don’t want to say something mistaken—but I think you are the first hardware wallet manufacturer to release a Bitcoin-only product. I know that in the first generation you also supported Litecoin, but after this you dropped it and after you have promoted this Bitcoin-only approach, Trezor has released their Bitcoin-only firmware for the Model T and for the other one. And I think you have started this trend of having Bitcoin-only devices. And my two questions about this are, is this profitable and does this really help with security by reducing the attack surface?
It does. First, maintaining a massive codebase just means you have to do more testing and more bug fixing. So that means there’s more room for attacks. That just a reality of software. The more software you have, the more stuff you have to test. Again, it’s a little bit of marketing on the other devices because they’re still maintaining a massive codebase of shitcoin. The only difference is they’re making releases that don’t have the shitcoin, but that’s still a substantial amount of resources put in those or at least to review and test those. So just taking that stuff out doesn’t improve the security that much if you’re still putting all those resources on it.
In terms of profitability, we are a profitable player. We sell a lot of devices, but we are never going to be able to sell as many as, say, Ledger supporting all the shitcoins. So it’s an interesting sort of play. But we’re also not trying to be so consumer-friendly in a way, even though it is easy to use. We are focused on Bitcoin and actual hard security with open source. I don’t know where Trezor is in that spectrum. Because they do support all the shitcoins so they profit from that. But they also have to deal with all that stuff, so it’s not clear to me. But the reality is that Bitcoin is king and that’s where most of the HODLing is. So that’s what we’re going to focus on.
Yeah. Also, I’m not sure if this question was part of the plan, but I have noticed that other shitcoiners, or altcoiners or call them whatever you want. They don’t care as much about security of their funds.
No, because they’re going to dump it in a week. They’re holding on an exchange to dump it. Aside from some old altcoins—maybe there are some larger HODLers and stuff. Reality is, most of them are just gonna pump and dump it on the exchanges. So I don’t really see the true value in supporting them either.
I know this is a Bitcoin-only podcast, but I see Ethereum people on Twitter and none of them seem to be concerned about verifying the amounts that they’re holding in their light wallets with a full node.
Ethereum people are not interested in verifying anything. There is maybe a handful of archival nodes in their network and they’re all on Amazon. So I bet there is like one person left running all Ethereum archival nodes and that’s it. So it’s a different mentality. Those guys are more interested in creating JavaScript apps, and I’m not going to get into Ethereum, it’s pretty hopeless.
Yeah. I don’t want to get into it either, but it’s just the general remark that Bitcoiners tend to be most paranoid about security and also invest in hardware wallets, steel plate storage methods and all sorts of creative ways of storing their private keys. Whereas on other coins they just don’t care. They might as well use a light wallet like Coinomi or something on their phone.
The way I like to look at it is Bitcoin is hard money so Bitcoiners want hard security. The rest of the stuff is just noise, so they’re going to just use noisy solutions.
Yeah, that’s right. But we established that this is some sort of reaction episode to what others have said during the season. And in Episode 7, Peter Todd told me that he doesn’t use a hardware wallet even though he has played with a few of them. He owns a Coldcard, he owns a Trezor, but doesn’t use them and has some kind of virtual machine set up where he uses an operating system called Qubes and he doesn’t trust anyone else with providing any kind of devices. And I suppose that there are different types of Bitcoiners who have different types of expectations and expertise in regards to security. When you first start out and want to get your Bitcoins out of Coinbase, you’re going to have a different expectation from somebody who is basically a cypherpunk and can build stuff on his own. So what is the category to which Coldcard is trying to appeal?
So we have a lot of security researchers that actually use Coldcard as their wallet. We are the paranoid hardware wallet. We like real security, code, and everything. There’s always going to be extremely advanced users like Todd who know exactly where to drill on the laptop and burn it after so that nobody can retrieve their stuff after. But the reality is, most people don’t have the right knowledge. And even for the people who have the right knowledge, they have other things to do in their life. Aside from attack Bitcoin, which is Peter Todd’s full-time job. It’s unrealistic either in terms of knowledge or in terms of time for all categories of users to essentially not use a hardware wallet. I mean, I’m fairly knowledgeable. I could run my own wallet on a laptop and I chose not to. I chose to use to create Coldcard for that because a computer is just too full of holes. And I don’t think that that’s changing anytime soon, even using Qubes, which is awesome. I think it’s unrealistic.
I remembered this point from—and you’re going to laugh when I mentioned the name—but I did an interview sometime in December, but Trace Mayer told me that he doesn’t trust any kind of hardware wallet manufacturer because they might keep databases of their customers and they can possibly associate the serial number with the amount of Bitcoins that you’re holding and possibly your identity.
So a few different things there. Let’s just address them. One, it’s true that hardware manufacturers could keep track of invoice versus device sent. We don’t, but it’s not impossible. Now what a lot of people do, especially large HODLers that I know of, they will either get a friend, a lawyer, or anonymously order the hardware wallets from us and sent to them. Essentially, even if we were nefarious, we can’t keep track of that. Now, two, the most important part here is we don’t know your key. So it’s impossible for us to derive your public key to then know your UTXOs. It’s literally impossible. And on top of that, we have this dice feature so that you don’t have to trust our seed generation. You can create your own seed with dice. So again, it makes it impossible for us to know your keys. So there is no way, even if we knew your serial number—which we don’t—for us to figure out your Bitcoins, it’s just not possible.
Yeah. And this is not possible, mostly because you don’t run servers to which users connect. You expect them to use the Electrum or Wasabi or some other third party wallet as opposed to Trezor, which has their own setup. And I’m not a fan of their approach to use a browser extension. I don’t think that’s really—
And I think Ledger has a client that you install on your computer, but still you connect their full node and their server and they know at all times how many Bitcoins you own and stuff like that.
So yes this is a massive issue and that’s the reason why essentially we will never make a wallet that connects to our servers. So in that case, yes, it is possible for Trezor or Ledger to—I’m not saying they would do it—but it is possible for them to have a serial number attached to your invoice to then identify the serial number through their system, and monitor those wallets. Because they do have servers talking to their wallets. Now I believe Ledger is adding a full node to their Ledger application. I think that’s a huge improvement. And I hope Trezor does the same. I think one of the biggest issues with Bitcoin is UTXO privacy and if you get a hardware wallet and you go and you plug it in to the computer and into these server-based wallets that are a little bit easier to use that Trezor provides, you’re doxing yourself. I don’t believe they’re nefarious or anything like that, but you don’t know who’s listening. So I think it’s a terrible idea to dox your UTXOs to a service. Especially one that has your personal information.
That’s a different model. It’s a different product. And I think that those are even free nowadays. So I don’t think they’re even playing in the security space anymore. It’s a whole different category. You’re just increasing your security exchange a little bit, but it’s not really playing to the actual security of your HODL hardware wallet anymore.
Yeah. I like to argue sometimes that you can buy that KeepKey for $20 or whatever they sell it for these days and run it through Electrum and it’s still kind of a Trezor.
Yeah. And I know that, for example, I spoke with @BTChip of Ledger and I think he designed the original Ledger and is responsible for the current designs too. And he said that he appreciates Coldcard because they brought PSBT to hardware wallets and he thinks that the future models of the Ledger are going to have PSBT. But on the other hand, Peter Todd told me that he doesn’t think that having the air gap with PSBT really makes much of a difference because you still connect the device to the computer with the SD card. So it’s indirect, but it’s still a connection there.
Yeah. So he’s very wrong about this one. So the USB stack is a massive clusterfuck. People who work with USB know this, it is just insanely big and messy. And it’s only getting worse. When you look at USBC, you just want to cry. And then you are susceptible—aside from the USB stack—you’re also susceptible to USB cable attacks like the iPhone stuff. You can have a nefarious cable there doing stuff. Let me go back to microSD first. So the microSD route—SneakerNet as it’s been known as for many years—it’s not perfect, but it’s a very tiny codebase. And it has very limited read and write capabilities and it’s not executing anything.
So it’s a much smaller attack surface, while the USB stuff is monumental. Another huge gain you get is retrieval capability. Assume that all devices are hackable. Eventually, somehow. If you are remote and the wallet is not connected to something, you cannot retrieve information you manage to attack. With the microSD, you’d have to physically go there and attach it. But say you found a flaw in a hardware wallet and somehow it can be exploited via the USB, you can remotely take that data out. That’s not possible with the microSD. There is a reason why so many secure facilities and important stuff is completely cold, like a nuclear power plant. Just think about the extent that they had to go with Stuxnet to be able to get inside a power plant, a nuclear enrichment plant, to do that attack.
And even then, it was not for retrieval, they were just trying to mess with the plant. So the increase in attack complexity and retrieval is very big when something’s not connected. And then you also gain the UX of better security hygiene. So you can have your Coldcard in a in a very secure location and you go there and you only plug it to power. There’s no laptops, there’s no electronics with you, you’re not being tracked or anything like that. And then you do your transaction and then you take the microSD out and you go back to the location where you’re going to broadcast it. That whole UX security hygiene is a huge gain as well. So it’s too simplistic to just think that microSDs can be attacked as well, therefore, USB and microSD equal the same. It’s not. There’s a lot of parts to this.
That’s fair. And I didn’t know this about microSD versus USB security, but it makes a lot of sense because there is so much happening with the USB device and there is only so much you can do with SD cards.
Exactly. Again, especially when you’re doing the microSD card with embedded devices like a Coldcard it is a very simplistic approach. So there’s very few attack vectors there.
Yeah. And let me address something that I did not like about the Coldcard. And I’m not sure if it can be fixed without a wallet of its own, but you cannot check your balance to see how many Bitcoins you have directly from the device. You have to connect to a third party wallet like Electrum.
Yeah, that’s true for any hardware wallet. Because you need UTXO information from the blockchain to give balance. So any hardware wallet that is not online—that’s not either a full node or an SPV client—cannot see balance. It’s not that the hardware wallets don’t want to show you a balance, it’s just that it’s impossible without connecting to something.
Oh, you can do that. You can do watch-only with a Coldcard and a Samourai or with a BlueWallet or Electrum or Core or really any wallet that supports watch-only you can export to the xPub and just watch it. Mind you that if you’re doing watch-only, you are doxxing your UTXOs to the node. If the node is yours, great. If the node is not yours, you’re still doxxing your UTXOs.
Yeah. And I want to mention that we spoke a little after I published that review in Bitcoin Magazine and some of the remarks that I made, you disagreed with them, and this is your chance to punch me back in the face for saying that the physical robustness of the Coldcard is not as good as the one on the Ledger, even though that was my perception when I was touching them, I didn’t try to smash them. But also before you answer this, I also want to mention that in terms of design and opsec, the Coldcard does look like a calculator until you take a closer look and you notice that the screen is too small and it doesn’t have any kind of plus, minus, multiply, divide buttons for operations. So do you think you could disguise it to make it look more like a calculator?
So I don’t believe in security theater. Reality is any advanced attacker or any attacker that’s coming after a hardware wallet, it doesn’t matter what I make a Coldcard look like, they will know it’s a Coldcard, because we’re going to have pictures of the product in a website. So you’re not really gaining anything. Nobody is stupid enough to believe that that device is not your hardware wallet. So it’s just not worth it. So might as well not try to pretend to be what it’s not. In terms of robustibility, Coldcard is made of PC—which is a polycarbonate—it is a fairly strong plastic, it’s actually stronger that some of the vendors, but these devices are not considered rugged. So any of these devices will yield under a hammer.
So we don’t have any link between devices like the serial number of the bag or the device itself—and the invoice. They are just random in a pile and they get shipped out. Now due to tax law in Canada, we have to keep invoices for years. There is no choice on that, but there is no requirement for you to put your real name on an invoice or send to your real house. So everybody can be called Satoshi Nakamoto in our invoices and that’s pretty fair. Essentially there’s really no link. We have to keeping invoice information. That’s true I think for probably most vendors of anything.
I think the last reply that I got to this question was about Shopify, which is a third party shopping processor. And Cobo said that they don’t store the data themselves. And that goes to Shopify, but they still get invoice data just like you do.
We’ve built our shopping cart system many years ago before Segwit, before everything. And it was built with a lot of privacy in mind. And the information is kept by us. There is no third party involved unless you pay your credit card. If you pay with your credit card then you’re essentially doxxing yourself to Stripe. But there is no link between the serial number and the customer. If you want to pay with Bitcoin you put Satoshi Nakamoto and you send to your P.O. Box and it’s none of our business. We can’t really know who you are. There is no requirement for us to know who you are either.
I remember when I first set up the Coldcard that I really liked that part where you can generate more randomness to your seed phrase by rolling a dice and inputting the result from one to six. And I think I rolled the dice like 100 times on that day. Just for fun to see if the device says this is enough. Just move on with your life to do something. Is there a recommended number of dice rolls or what do you recommend for security?
So again, into that sort of paranoid mode, which is where I think everybody should be in regards to their wealth. And especially regarding cryptography—we don’t trust the device itself. Never will for key generation. So you can let the Coldcard generate your seed. The code is open source. You can see, technically it is sound but why trust it? So what we do is we offer you the option of throwing dice—six face dice—to add your own entropy. You can do the full 256 bits of entropy with 99 rolls, or you can do 50 rolls, so that’s like half, or you can do just a few rolls and add some entropy at least to trust-minimize your seed generation. It really is to the level of your paranoia.
I was just scrolling your Twitter feed because I remember you posted about something very innovative for which Francis Pouliot also praised you, but I don’t remember the name of it.
I always wanted a roll your own co-sign service. So essentially you’re like your own BitGo without doxxing your coins to a co-sign service. We essentially developed a open source little project that that does that. You can use a Coldcard as a hardware security module. Co-signing transactions from either another Coldcard or from other hardware wallets, anything that supports PSBT—partially signed Bitcoin transactions. And it’s a bigger project, so it supports a lot of modes and you can have different users and it has a web UI where it’s over Tor, but essentially you put it running on a machine with a Coldcard on it and then you get a web service essentially over Tor for you to do your co-signing. So you can tell it only co-sign transactions of one Bitcoin per week. And that’s all it’s going to co-sign. So now you can, you can have a little bit more security with more parties involved, and that party is essentially you, so you’re not losing privacy.
Yeah, so we have, since the launch, a secure backup method. So you can essentially encrypt your private key and other settings of the Coldcard into a microSD card. And then you get the 12 words to decrypt that micro SD card. That’s very nice for you to migrate between your Coldcard to another or for you to just create a safe backup that you can put somewhere else. We don’t have Shamir yet. We plan on doing Shamir shares at some point for backup as well. It’s just that there’s a lot of other features that are more pressing that people want. We actually had a release today of another firmware with more interesting features. We’re trying to sort of do the roadmap based on need as opposed to want.
That’s a fair approach. But what is next for the Coldcard? How do you envision the next iteration of the wallet or some other firmware update that adds cool stuff to the existing models?
So just today we launched a scramble PIN key pads, so you can scramble it on the screen. You can now show a QR code when it’s over USB. Oh, this is a big one for me. When you create an Electrum or Bitcoin Core file from Coldcard, now you can choose the account number. So you can choose different derivation paths essentially. That’s nice because if you’re migrating from a Ledger or Trezor that had different accounts on their software it’s very easy enough for you to import that seed and create new Electrum files with those different account numbers. So just a click. There’s bug fixes to do. There is a lot more Multisig support. There is more integrations with other services and products.
There’s the Shamir stuff we want to do. The list is long and prosperous. It just never ends. I hope to one day do Lightning, and maybe some of the coin mixing from the device. We want to see how people use the HSM bunker feature and improve there as well. And then there is hardware itself. We were doing more experimenting with different secure elements. There is very interesting stuff that are not public yet, but coming out of different providers, the different chip vendors that they’re are giving us to try. We want to improve the UX on Coldcard. Definitely look into different industrial designs for it. This is what we want to do with our lives all day. It’s sort of like a never-ending pursuit here.
I agree. And for every new security feature there are going to be many more, not necessarily bugs, but ways the exploit. So you have to fix all the time and keep up with the hackers, some of them ethical, some of them stealing your Bitcoins. But I wanted to ask you something. Let’s say that I buy the Coldcard today and I hold on to it for 5 years, and maybe use it as a cold storage way. You think it’s secure enough to not update the firmware and just leave it like that?
It’s impossible for me to know what the bugs or we will be. So it’s not possible to give a future-proof answer to that. If your physical storage is fairly safe and you are using your 25th word, long term, it’s pretty reasonable. It’s likely more reasonable than a computer. Is likely more reasonable than some of the other vendors. Coldcard Mk1, even though it has some exploits is still an order or two of magnitude more secure than a Trezor. So we just never know what kind of attacks will come. Again, this is a very young industry. We haven’t had secure elements made for Bitcoins. We’re still using generic stuff. So it seems important to keep pushing until this industry as a whole matures a bit. Maybe in 20-30 years, it will be more obvious and more stable. Like where is your footing in terms of security. But I don’t think that that’s necessarily a choice or an option now. I think now the best thing to do is to keep pushing and sort of don’t expect things to just remain safe or stable forever.
I think it will eventually happen. There is some conversations being had with different vendors, but the scale is not there yet for this kind of R&D. So as Bitcoin scales we have a lot more economies of scale and we can make more interesting things that are only allowed at that scale.
It’s a whole different level. Unless you are a, well, even if you are a very advanced user, it’s still in my opinion, much safer to use a Coldcard than a computer. There’s just no comparison there.
Thanks for the opportunity to talk about this stuff and clear out some of the conversation around hardware wallet security, secure elements and all that stuff.
No. Just follow Coldcard wallet on Twitter and join the Coldcard telegram group so you can stay up to date with this stuff. Submit bugs if you find them help us improve the documentation. Keep on buying the product. We keep on making it. It’s as simple as that.
Lixin Liu is the creator of the Cobo Vault: a device which benefits from military-grade physical resistance and includes lots of interesting security features.
Currently, the Cobo Vault costs $479 and is designed for the needs of Chinese miners who operate in extreme weather conditions and also need reliability.
However, Liu is looking into expanding the Cobo Vault into foreign markets by targeting mass consumers who hold bitcoins. A second-generation Vault would tone down on the military-grade robustness, while focusing on desirable features. The upcoming Cobo Vault will offer an air-gapped wallet that is exempt from remote attacks and also takes into consideration physical security with a secure element chip.
During the interview, Lixin Liu also mentions the newly-launched Cobo Tablet metal plate for cold storage and explains why the product is designed to be more practical and intuitive than the Crypto Steel or Billfodl. The irony is that the Cobo Tablet is the most affordable steel plate product on the market, while the Cobo Vault is the most expensive hardware wallet available.
Liu also answers all the tough questions about open sourcing the software and the current state of auditability, the privacy provided by the Cobo Vault, and how the hardware wallet devices measures up against the Trezor, Ledger, BitBox02, Coldcard, and KeepKey.
1:08:08 – Does Cobo Vault connect to your own full node?
1:10:40 – Cobo Vault privacy
1:18:33 – Closing words on 2nd Generation Cobo Vault
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Hi there and welcome to the Bitcoin Takeover Podcast. I am Vlad and my guest today is Lixin Liu from Cobo, which is a company that focuses on your private key protection and they have quite some premium services and products which are connected to hardware wallets and cold storage. And I think on their website they even sell the whole package, which allows you to have both the hardware wallet and the steel plate for cold storage. So Hi Lixin.
Yeah. So we should talk about the products of Cobo and what makes you stand apart from the crowd. But before that, I will ask you the question that all the guests of this season have answered and Why should Bitcoiners use metal plates for cold storage and hardware wallets for their private keys as opposed to other methods like brain wallets, paper wallets and other DIY methods?
Okay. First I can talk about brain wallets. And actually for brain wallets I have kind of a horrible story to share with you guys. The CEO of Cobo, whose name is DiscusFish (@bitfish1), he told me a horrible story happened on him. The story is he once had 12 recovery phrase words memorized just in his head, as others use the brain wallet. He’s a very disciplined guy. The very first thing in the morning he got up was to try to repeat the recovery phrases in his head. The days went by doing this. He was 100% sure he wouldn’t mess up those recovery words, but he was totally wrong. The following story is, he and his wife, they raised two bulldogs and his wife was actually training the bulldogs to play skateboard at home.
One day she was playing with one of the dog and left a skateboard at the entrance of a room. But after that DiscusFish walked out of the room and he accidentally stepped on the skateboard and he flipped over and hit the back of his head on the ground. After that his first reaction was to check his memory of the recovery phrase, but unfortunately he couldn’t remember it. He went to the hospital and he spent one day there and he was diagnosed of concussion. After those diagnosed and for the next three days, he was trying really, really hard. And finally he came up with the lost recovery phrase. So I think for brain wallets this kind of story is a very vivid reminder that if you have a significant amount of crypto assets, please don’t trust their brain. There are all kinds of different accidents that could mess up your memory and no matter how hard you train your brain or you memorize it every day and repeat it every day, just accidents happens and your memory will be messed up.
Yeah. Most of the times we perceive hardware wallets and steel plates as protections from other people who might be interested in stealing the coins, but they are also protection from ourselves. Because we are only as good as our biological bodies allow us to be.
Definitely. For me, after I know this story I would recommend that no one—if anyone asks me any recommendation on brain wallets I would say no, never trust your brain. It’s not that reliable.
Plus, even if we take care of ourselves and make sure we never get into accidents and stay at home most of the time, there is also degradation over time.
Oh, you also asked me like paper wallets, right. I didn’t talk about paper wallets. For the paper wallets I think it’s obvious that the metal solution is a better choice, because if you put your recovery phrase on a piece on metal, it’s waterproof. It’s also fireproof and corrosion proof. And also there are always a lock hole on the metal plate so that you can lock your recovery phrase with a padlock.
But I’ve also seen some suggestions on Twitter that some people say that if you put your recovery phrase on two piece of papers and duplicate them, which means duplicate them on two pieces of paper and that is safer. But actually from me, my personal perspective, I don’t recommend these kinds of storage, because even with paper wallet—you duplicate them—that will increase your robustness against natural disasters like flood or something. But that will also increase the chances of theft. So if you don’t worry about safety, you can duplicate it. But if you worry about someone breaking into your home and steal your recovery phrase that way, I think that’s not a good choice for most of us. That was for paper wallet. And you also ask the DIY methods, right?
For DIY methods, I have some friends, they do the metal thing by themselves. If you are a DIY person, you can buy something like a engraving pen. You can easily buy these with around $30-40 on Amazon, find a piece of metal and create your own metal storage for the recovery phrase. For people who don’t want to play around with the hassle of the DIY stuff, you can buy some metal storage like a couple tablets or other products. I think that’s the main difference between these different kinds of methods.
Yeah, that’s right. But at the same time, do you think that hardware wallets and metal plates are adversarial in their purpose or are they complementary? Is it either or, or is it better to have just one or have both at the same time?
Actually I don’t see these products as they are like competing each other. No matter if you use a hardware wallet or a software HD wallet, you still need to deal with your recovery phrase. So the metal plate thing like Cobo Tablet, they supports all the recovery phrase for any BIP39 hardware or software wallets, and you also can see that Trezor’s official store, you can buy Trezor bundled with CryptoSteel, so you can definitely use them together or you can use the metal plate or metal storage with your software wallet. They’re both okay. Or even if you use any desktop or mobile wallets, you can use that. So I think it’s complementary.
And that’s reasonable, if you want to get the best security possible. You don’t want to just rely on that piece of paper, which comes with your hardware wallet or some kind of notebook that you buy yourself and take notes in it.
Yeah. And sometimes the cloud service automatically gets your pictures if you have the wrong settings in your phone—you take a picture and you’re not even aware that it goes into the cloud, and that’s how you essentially get hacked.
So let’s talk about the Cobo Vault, which is your solution for everything, basically. It has a hardware wallet, it has a steel plate, and it costs almost $500, which I think is the most expensive product on the market.
Okay. So for the Cobo Vault, hardware wallets is a very niche market if you compare that to laptops and the mobile phones. But even in a niche market—all the hardware wallets—they should have their distinct positioning. When we designed the Cobo Vault, we were targeting the miners in China actually. For those who are not familiar with the mining industry in China, all the mining farms here in China are always built in very isolated places because in those places, the miners can get the best price for the wind or the water electricity. So as the miners would take the Cobo Vault into these isolated regions and rather than just put them at home or put them in a safe or in a deposit box—when we designed the product, we want to maximize the security and also the durability of the device.
And that comes with a lot of costs. For example the main body of the device is made by aerospace aluminum and it has a four inch big screen and it also comes with a metal case so that you can put your device into that. And also the product passed a lot of durability tests. Like it’s IP68 waterproof and also it’s IK9 drop resistant. And also we even did an American military-standard durability test on it, MIL-STD-810G. So all this form factor stuff took a big portion of the pricing of the product. And also user experience wise, because we are creating a product for the miners, they’re very extreme on the security side. So we create a totally air-gapped experience for those miners, which means we have a camera on the device.
So you can do QR code scanning to get the un-signed information into the Cobo Vault, and then the Cobo Vault can do the signing, do the cryptographic calculation and the algorithms and do the signing work and it generates QR code again. So then you can use your—we call it hot device—which is connected to the blockchain. You use your hot device to scan the QR code to get to the signed message, or the signed information, and then you can broadcast it to the Internet. So that’s the main attraction of the Cobo Vault. And because we use the QR code, because we have the camera, if you wanted to support the camera, you need to have a much more premium chip. And all of this comes with a cost and all these costs results in maximized security and durability, and that’s the design thinking behind the Cobo Vault.
That’s kind of fascinating. I never really thought about products designed specifically for miners. And I suppose that when you run a mining operation, maybe next to a windmill or a water wheel or something, then you’re going to require some sort of resistance to natural disasters.
Yes, definitely. Maybe I can introduce some more about the background story of Cobo: so for our CEO, his name is DiscusFish. He was one of the earliest Bitcoin evangelists in China and he was like the community leader among the miners and he’s also the CEO of F2Pool, which is one of the biggest mining pools currently in the world. So the team I’m leading that’s working on the hardware wallet, we were designing the whole product for people like him. And in order to get more user insights and in order to know more about the miners, he introduced me to pay a visit to one of his mining farms in Xinjiang in China. Oh, that journey was really interesting.
Like I flew for five hours, and then I took a train, and then I took a car, and then I walked for a long time and got to the mining farm. At that place in winter there is a lot of snow, you cannot walk there. And also he has another mining farm, which is in Sichuan province in China. And that province is really rainy. So you get wet all the time, not only your clothes but also your home. So you have to use some hardware wallet that is waterproof to get into those kinds of scenarios.
I never really thought about this because basically I come from a country where you don’t have to worry about this kind of situation, but it makes sense. I don’t think a Trezor is resistant to water and natural hazards. I haven’t tried that actually. They’ve tried to smash them and stuff like that, but I’m not sure if they’re tested against humidity and weather conditions.
Yeah. Actually different hardware should be built for different places, different people and different scenarios. One thing I can also share is that when we launched the Cobo Vault we sent it to one of the KOL. And he drove his car over a Cobo Vault, and come and back for several times and the Cobo Vault survived those kinds of extreme test. And that is how we design the product and where we put our thoughts into the scenarios of this products.
That seems reasonable. I feel like we should get back a little bit to the Cobo Tablet as it’s the latest product that you’re launching. And it’s also the product for which you sent me some documentation to explain how it works and basically help me ask you questions about it. So what is special about it as compared to CryptoSteel and Billfodl and other similar metal plates for cold storage?
For Cobo Tablet, as I just mentioned, the metal storage can work with hardware wallet and software wallet. So the metal storage should be more widely used because we think it is compatible with every decentralized wallet. So when we were trying to develop the Cobo Tablet, we took the price as the first priority to benefit a wider community. So it’s totally different from Cobo Vault. Cobo Vault we were designing for the miners and they need to maximize the security and durability, but for the Cobo Tablet we want to benefit—the more people the better, so the price is the most important. And thanks to the strong manufacturing capabilities here in China actually in Xinjiang, you can see that the price for Cobo Tablet is approximately half of CryptoSteel’s and the Billfodl’s price.
The price is the first biggest difference between Cobo Tablet and other competitors, and the other big difference is ease of use, if you get a closer look at the product. During our development we asked several random HODLers to come to our office to do a blind test on how much time they need to set up a Cobo Tablets or a Billfodl, and all of them has no prior experience with these kinds of products before. So they’re like very fresh people. And the result was really astonishing. The average time for setting up the Cobo Tablet was around 7 minutes, and setting up Billfodl took on average 12-13 minutes.
And the biggest difference for user experience between Cobo Tablet and CryptoSteel or Billfodl is that for CryptoSteel and Billfodl you need to slide in the tiles from the right side. So it’s very hard for you to put a tile into the perfect position, as the slot for the tile is very narrow and tight. And if you find one tile was wrong, you need to take out all the tiles that you have put in and redo the whole process again. So that’s why using CryptoSteel or using Billfodl is not that very user-friendly, but with Cobo Tablet you just open it and you just put the tiles in. So that’s much easier. And maybe I cannot explain the experience very well with words. I think if the audience is interested you can check out a YouTube video which is detailed, describing this difference between the products. The YouTuber’s name is Crypto Guide and you can find the video there. It clearly shows the difference.
And here I want to share: if you are using these kinds of products like Cobo Tablet or Cryptosteel, I want to share another note for every one of you. You need to pay attention to the tiles left after you set up this stuff, because no matter Cobo Tablet or Cryptosteel, they all have a fixed amount of the tiles for each letter. So if you don’t dispose of them properly, someone could figure out what letters you have used for your recovery phrase. So it’d be much easier for them to brute force your 24 recovery words then. So for people who use these kinds of products, you need to really pay attention to how you deal with the left over tiles.
I never thought about this, but it makes sense if somebody wants to hack you, they just look at the letters that you used. And after that they just input the letters into random word generators. And I guess the harder part is to figure out the order, but it’s still not impossible.
Yeah. The order, if they have figured out the 24 words, the order is not that hard because the 24th word is the checksum of the other words. So they just do 2 hash and then they can do the checksum, they even don’t need to check the private key and public key to see whether there are some cryptos on that. They just do the checksum. It’s very easy.
Right. So on the Cobo website I can see that you have two different types of—you call them tablets—but that’s a bit misleading in my mind because when I think of tablets, I think of stuff that has a touchscreen and works like an iPad, but it’s actually like an enclosure which has all the letters to create your cold storage backup on a metal plate. And you have the Cobo tablet and you also have the Cosmos tablet. What’s the difference?
The Cosmo tablet is a co-branded version of the Cobo tablet. So we just built that version together as a swag for Cosmos community and functionality-wise, they are 100% the same. One thing I can share is currently we’re also talking with Coldcard. We may have a co-branded version for Coldcard and maybe people later can buy a co-branded version of the Cobo tablet on Coldcard’s official website. I’m just talking about that with NVK now.
Yeah. You may ask his opinion on the metal storage or something. He told me that he was not a big fan of this tile version, but he really liked the punch version. Mainly there are two kinds of metal storage today. One is the tile version like Cobo tablet, the other is punch version. So you have a hammer and a metal plate and you also have a punch stick. So you use your hammer to punch the letter onto the metal. For that kind of interaction, it’s not that elegant or it’s not that easy with things like Cobo tablet, but they are cheaper. So according to our original principle of developing Cobo tablet, which is bring the best product, with the best price for as many people as possible in the community. So we’re also developing a punch version. It would be much cheaper. For Cobo tablet it’s around $39 now, and for the punch version, we will control that under $25.
Yeah. It’s interesting to me that you have the least expensive steel plate storage device on the market, but at the same time you also have the most expensive hardware wallet.
Yeah. Again, the reasoning behind this is product positioning because we’ve tried to position to different people. Another story I can share here is that, last year I went to Bitcoin 2019, and I talked to a lot of normal HODLers there. I found that 95% of them don’t care about the product. That is very interesting I found, because I only interviewed the miners before. I never interviewed normal HODLers in the United States. So I asked them whether they were afraid that their home could be flooded if a water pipe explodes or that any natural disasters would damage their hardware wallet, as there’s a lot of forest fires in California which threatens people’s homes.
But the answer from them was very interesting. They said, yes, they are afraid of those things, but they see them as very low possibilities. Even if something were to happen, they said they would just buy another hardware wallet, because it’s only $100. From those conversations, I think you can tell that positioning a hardware wallet for miners and for HODLers is totally different. After coming back from the conference, our team began to design a product for the normal HODLers. We spent almost one year on that and I think we’re going to launch that product around late April or early May, and we call it the second generation for Cobo Vault. For this new generation, the Cobo Vault will compromise on the durability side, but it doesn’t compromise on the security.
Just like the current version—which is the first generation—the second generation will still be totally air-gapped and comes with a camera. It can do QR code transmissions. We will also support PSBT, and an open sourced secure element, which is the first one in the industry. For the pricing, we are trying really hard to control our second generation in the $100-$200 range so that it’s affordable for most of the normal HODLers.
I guess you’re going to need some kind of rebranding there because if it’s Cobo Vault, gen two or V2, some people will assume that it’s better than V1 when it just has some extra features, but at the same time it’s not as resistant and tested as the first generation.
Yeah. After we launch the second generation, the first generation will still go on because there’s still a lot of miners and also some institutional users—they want the first generation. But we won’t call it like first generation or second generation. We may have other naming or branding for this product. Yeah, what you said is very right.
So let’s say that somebody discovers Bitcoin today and possibly buys a few hundred bucks worth of Bitcoin on an exchange. And at some point, maybe in a few months, they figure out it’s a bad idea to keep their Bitcoins on the exchange because of Mt. Gox and other events that happened before. So first of all, what is the thought process in regards to choosing a hardware wallet in your opinion? And why should they go for the Cobo Vault?
I think maybe it’s better if we take this Cobo Vault as the second generation because I think the first generation is too pricey for a normal HODLer. If we talk about the second generation of the Cobo Vault, if you asked me to give advice to some people how to choose their hardware wallet I think (1) the first thing people may ignore is that you really need something with a bigger screen. So I think a lot of people have suffered from the little tiny buttons of Ledger or Trezor or other products. I think it’s really hard to use those products because some people’s hands, they’re really clumsy. With these kinds of tiny buttons, it’s really not easy to use them. Another benefit for the bigger screen—if you want to type in your passphrase or your recovery phrase, it’s easier.
Another benefit which is brought by the biggest screen is that you can clearly see your address and the amount of money—amount of crypto—you are going to send. So it’s quite clear for you to check the information, which also increases the security of your crypto. I think that’s one thing most of the suppliers or vendors of hardware wallets didn’t recognize. The big screen is very important. (2) The second thing I want to emphasize is the secure, element. For the secure element I have some contrary opinion to the market, which is: actually a secure element can be open source. A secure element is a must. And if the hardware comes with an open source secure element, then it’s much better.
Also with our second generation, we’ve open sourced the firmware of the secure element. Those of the most important two things. (3) The third things I think is really important is how air-gapped is your product. Currently most of the products, they are connected through a USB cable to your laptop or it’s connected to your phone through Bluetooth. But we all know that for Bluetooth, if you search for keywords like “Bluetooth vulnerability” on hackernews.com, this kind of website, you will find there a lot of accidents or vulnerabilities for Bluetooth, like man-in-the-middle attack, this kind of stuff. So for Bluetooth it’s not a very good choice. But also for USB cable because your laptop can have some malware. I know that in early days a hacker can perform a side-channel attack on the USB cable on a Trezor. But it’s an early thing—Trezor has fixed that. I just want to say that the USB cable is an attack vector for the hardware wallet. So three things. The first is bigger screen for ease of use and better security. And the second thing is the air gap. The third thing is the secure element and if the secure element is open source, then it’s much better.
Right. I have had this discussion with Slush in the previous episode and his opinion on secure elements is that they’re a waste of time because they’re bound to get hacked. And if you focus too much on hardware and physically securing hardware wallets, you’ll just end up in a situation where you have to release a product each year or something just to keep up with what’s going on. And he thinks it’s a better approach to just focus on the software and make it proofed to attacks through stuff like Shamir backup and passphrase and whatever Trezor is innovating right now. So first of all, what is your stance in regards to this? And secondly, how is this secure element really open source? Because usually the criticism about them is that you cannot see all of the code that goes into them.
Here I want to emphasize again that I think Trezor is a very great product and they really have contributed a lot to the community. But I think Slush is a little bit biased about the secure element. Just as you said, the main conflict in the community is that a secure element is like a black box with better defense of physical attacks, and the general-purpose MCU is more like a white box, but with see zero defense from the physical attacks. First, one saying on Twitter I can share is that, if you are paranoid, then you can be 1,000 times wrong and you still got your crypto. But if you are not paranoid, you can get one time wrong and your crypto would be gone.
I don’t remember the exact word, but it’s just the meaning I think you’ve got it. For the secure element, it’s definitely a plus to help you to better protect your crypto. Even with some software tactics as Shamir secret sharing or the passphrase, you can still use a secure element, and you can add those kinds of tactics to your hardware. It’s not about using the software tactics so that you can forget about the physical attack. Personally, I really don’t agree with that. And also mentioning the open source for the secure element, I think most people would be interested in that, because currently all the people in the industry will say that you will sign an NDA with the secure element vendor and you cannot share anything of the secure element.
Actually, this is not the truth because it’s like a negotiation between the hardware vendor and the secure element vendor. If you are strong enough, or if you pay enough money you can still open source the secure element. So our situation is that we cannot open source the whole design of the secure element. But here one noted that if you use a general-purpose MCU, you still cannot open source the whole design of the MCU. You still open source the firmware on the general-purpose MCU, which is just as Trezor did. For us, we choose a secure element and we negotiate with the vendors of a secure element and we open source the firmware of the secure element. So with the firmware people can see that (1) first the entropy comes from a true random number generator, TRNG, from the secure element.
(2) The second, how your mass private key is generated. (3) The third how your child private keys are derived from your mass private key, and (4) the fourth, every cryptographic calculation or cryptographic algorithm happens within the secure element. And (5) the last is that your private keys never leak out of the secure element. So from the firmware you can see everything, you can see how it works in the secure element, and also you can verify the code. So I think by doing this we are adding a much stronger, or an extra layer of transparency, to the secure element and also later we will allow people to modify the firmware of the secure element and you can upload your customized secure element firmware onto the secure element, which means you can just build your own hardware wallet on a secure element.
I also talked to Slush. Slush also criticizes this like, Oh, you cannot share the datasheet of the secure element. But actually if you have strong enough negotiation power, you can share the datasheet. Later, if someone wanted the datasheet of the secure element, they just need to do very simple online paperwork. If a cypherpunk or a geek wants to get the datasheet of the secure element, they just need to sign an online NDA with us and we can share that with him. And also he or she can purchase a development board of the secure element from us so that he can almost play anything on the secure element. So that’s how we do the secure element open source. We cannot open source the whole thing. Even the general purpose MCU cannot open source the whole thing and the secure element doesn’t. But what we can do is open source the firmware and you can see how it is working and how everything is going on within the secure element. That’s our strategy of open source.
So Ledger published an article 2 weeks ago and it’s called “Not All Chips are Born Equal,” and I think it got quite popular on social media around the time. And in their classification they say that the stuff that Coldcard and BitBox use are not really secure elements, but they’re actually safe memory chips, which are not as secure as their design for the secure element. And their argument basically is that you cannot quite have the security of a secure element with full transparency. So how do you make that work?
Actually, for the first part you ask whether ColdCard or BitBox are using a secure element. I think the main conflict is your definition of the secure element. From our perspective, Coldcard and BitBox are definitely using a secure element, but they’re not using a very premium secure element, which means their secure element is more leaning towards better storage of some sensitive information rather than some cryptographic algorithms on that. I think that’s the main difference. So the Ledger secure element can do the cryptographic calculation, but the Coldcard and BitBox, their secure element is not that premium so it only does the storage work. But you cannot say that they are not using a secure element. They are using a secure element. We cannot mess up the truth here.
So that’s the first thing. The second thing is, for the transparency for the secure element, just like I said, if we open source the firmware, it’s just like Trezor open sourced the firmware of a general-purpose MCU, because for the design of the normal MCU and the design of this secure element, they both cannot be open source. But it’s easy to verify the secure element with the open source firmware. Here, the logic may be not that easy to understand, but for the secure element, if we open source the firmware, then there are two important things. One is the true random number generation. So this is not in the firmware. This is like the implemented library—implemented function—in the secure element, but actually you can bypass that true random number generation just like what Coldcard did—they allow people to generate their own entropy with a dice.
So you don’t need to trust the true random number generation of the secure element, you can generate your own entropy with the dice and from the entropy you type into the device, the device will do the cryptographic calculations and algorithms to generate your private keys based on your entropy rather than the true random number generator on the secure element. So that part is black box. But this black box, you can bypass that. You can do that by yourself. And for the second part, people may think the black box on the secure element is—again, if you open source the firmware of the secure element, the second part of the black box is the cryptographic algorithm. So for that part, it’s very easy to verify that because all the cryptographic algorithms are universal.
Just like ECDSA, they are universal algorithms. You can easily verify the results of those algorithms by another device. Or even with some Python libraries—you can easily verify that. So the most important two parts: one is true random number generation, and then the cryptographic algorithms, they are in the black box of the secure element, but one can be bypassed. The other can easily be verified. So again, jumping back to our open source strategy. If we open source the firmware of the secure element, then the secure element is just as transparent as a general-purpose MCU. So it’s almost totally a white box then.
Our secure element just has more RAM and more memory in the secure element. And there’s some cryptographic algorithms pre-installed into the secure element. So after we open source our firmware of the secure element, you will see that in the firmware we just call a function. It’s just like we call a function which is pre-installed into the secure element as the cryptographic algorithm. So it’s just like a pre-installed function in the firmware, and the function can be verified easily. Our secure element supports those kinds of pre-installed cryptographic functions and it has more RAM, so it’s more premium than the secure element that Coldcard is using and also than the secure element that BitBox is using.
I feel like we have clarified this part about hardware and there’s definitely going to be some interesting stuff going on with the second generation of the Cobo Vault with the camera and QR code scanning and the air-gapping. But what about the software? How much of the software in the current generation Cobo Vault is auditable and open source, and how much of it is going to be open source in the next generation?
For the next generation, I think you know that open source is not like a one-day work. So for the next generation first we will open source the whole code—we call it on the cold end—which is on the Cobo Vault. For the app currently we are using iOS and Android mobile app to support people do the QR code transmission and to get the balance from the blockchain and to broadcast the transactions. Currently we don’t have a clear timeline to open source that part, but the point is, because Cobo Tablet has the QR code here it’s very easy to decode the QR code or encode the QR code. So Cobo Vault can definitely be used with third party wallets just like Electrum. If you don’t trust our mobile app because it’s not open source and you don’t trust it, it’s okay. We will also make some Electrum plugins for people to easily decode or encode the QR code so that you can use the Cobo Vault with third party wallets like Electrum.
Yeah, that’s definitely useful. And I think you should also integrate with Wasabi as that turns out to be quite a popular choice because of Tor routing and all of that privacy extra.
Actually we will also open source the QR code protocol so that you will see how the raw transaction is assembled, and what’s the default format of this QR code. So any third party wallets can integrate Cobo Vault very easily. You just need to follow our format to assemble the unsigned transaction and to generate the QR code. And then you can use Cobo Vault to scan the QR code to then sign the transaction. So it’s very easy. Also Cobo Vault will support PSBT. PSBT is definitely for the scenarios of CoinJoin and also PSBT will support Multisignature between different hardware wallets, so even without our app, which is the app on iOS or Android phones, you can definitely use Cobo Vault with any third party wallet if they support the QR code thing.
Currently for the first generation of Cobo Vault, we only open source the secure element code, but we didn’t open source the upper layer software on the Cobo Vault. So currently the first generation of Cobo Vault is not fully open sourced.
Okay. I’m happy about the clarification because my next question is about building your own. If you’re going to follow this philosophy that Trezor and also Coldcard recently have pursued to basically make a list of the components that you need to build your own and also offer you the software just in case you’re in a part of the world where you cannot order their product and you want to build your own. Are you ever going to allow people to build their own Cobo Vault?
So for building Cobo Vaults we’ll offer another route, which is much more hardcore. It’s that, just like I mentioned, we will offer people the development board of the secure element. So I just offer you a raw secure element on a circuit board, and you can manipulate the whole circuit board and the secure element by yourself. So I think that’s a much more hardcore way of open sourcing the whole thing. You don’t need to build your circuit board for the Cobo Vault, we just give you the development board of the secure element and you just build your stuff upon the secure element. You see what I mean? So we don’t ask people to rebuild a Cobo Vault. We ask people to build their own based on the secure element that Cobo Vault uses.
All right. Sounds reasonable to me. So we have discussed about the hardware, we have discussed about the software and I guess we should talk about more stuff about the competition because everyone else has done it who has been in this podcast. So I have challenged everyone who participated in this season’s podcast to say something nice and something bad about other competitors. And Cobo is competing right now with Trezor, with Ledger, with KeepKey possibly, with Coldcard, and also BitBox02. So let’s get them in some sort of order and you get to say something nice and something bad about them. Let’s start with Trezor.
Okay. Just like I mentioned, I love Trezor the most among all these products, not only because it’s the first hardware wallet, but also they’re just a giant. We take Trezor as a giant and we take all the other hardware wallet vendors, we stand on the shoulders of this big giant to build better products for the market. Another thing I want to emphasize for the reasons I like Trezor the most is the transparency of Trezor. If you look closely at Trezor’s blog, it explains the details about the bugs and vulnerabilities, you can see that they even disclose how much time they spent on each bug or vulnerability. I think this kind of transparency is really good and makes people trust this brand, trust this product.
Trezor is like a teacher for all of us, for all the other hardware vendors. But just like I said, what I cannot agree with Trezor is the security structure that comes without a secure element. That’s also the reason I won’t purchase a Trezor to store my personal assets on it, because without a secure element it cannot survive from physical attacks. I think the second best one in my mind is Coldcard. I like Coldcard mostly because of NVK, because he’s the most paranoid guy I’ve ever known in this industry. And in order to make something like Coldcard—because you need to think about all the attack vectors in advance—you really need some strong imagination.
And NVK is that kind of guy who’s very paranoid and who really has some imagination, especially on the attack vectors. And they have some very interesting features like anti-phishing PIN input. I’m not sure you know that. For that feature, you just input the first half of your PIN and then you see a word. If the word is cracked, you input the second half of your PIN. So this kind of tactic can prevent evil maid attacks if a evil maid exchanges your product into something with malware on it. You can call the paranoid, but this kind of feature really helps people to protect them from different kinds of attack vectors. If you ask me to criticize Coldcard, I think the bad part for Coldcard is that my wife cannot use it.
But as NVK said he’s designing Coldcard for himself and for people who are like him. I think that is not a disadvantage. It’s the product positioning. So NVK is just trying make a product for himself—not for my wife—so it’s not a disadvantage. But if it’s more user-friendly, I think it’d be much better for Coldcard. For Ledger, I really admire Ledger because they introduced the secure element into the industry. But I think if ledger can open source more on the secure element—like the firmware, I think that would be great. Yeah, that’s, that’s full ledger. I’m a user from the first generation, Ledger Nano S, and one disadvantage is that you need to install the apps into your Ledger Nano S to support different kinds of coins. And usually the memory is not enough. So sometimes if you wanted to add one more coin into the Ledger Nano S, you have to delete some old one. So that’s a disadvantage of the Ledger.
The BitBox—I was not a user for the first generation. Yesterday or the day before I just got the BitBox02. So I cannot share too much about that because I haven’t got time to put my own hands on the product, but I think BitBox, they are very clever by separating the product into two versions. One is for the multi-chain version and a second one is BTC-only. I think the BTC-only version brings some simplicity into the product for people to have a better feeling for the product, because simplicity always brings security. So I think that’s very smart for BitBox.
Yeah. Actually I’ve been using KeepKey in early days, but I didn’t follow KeepKey’s later updates too much. In the early days I used it. I still can remember that KeepKey’s software wallet experience is much better than Ledger, because it’s very simple and easy to get your hands on it. If I remember correctly, it only supports Bitcoin, Ethereum, Litecoin, and another coin—only 4 coins on it, and it’s super easy to play with. You don’t need to worry about the different apps. You don’t need to worry about different features. It’s very simple to start to using it. So it’s very user-friendly I think. But again if you asked me to criticize KeepKey, I think the downside is that it doesn’t come with a secure element. I think that’s the worst part, because from my perspective, a secure element is a must.
Yeah they began as a clone of the Trezor, but provided that large screen which shows the entire address and that’s nice. It’s robust. It’s nice. I didn’t like that it has that connectivity issue, which they never fixed. Sometimes when you connect the cable it just doesn’t work.
It happened to me and then I went on YouTube and I saw that somebody else had the same issue and I said, Okay, it’s common—I didn’t get a defective unit or something. But it’s solid and it’s very robust and the cheapest on the market right now.
Yeah. I still remember one little detail of KeepKey that is you need to long-press the button to confirm a transaction. If you stop during the full-circle, the signing stops. So that’s very interesting, this kind of little interaction on the product.
So I wanted to ask you something else about the Cobo Vault software. Will you allow connection or connectivity to a full node that is owned by the user to minimize the amount of data that gets shared and increase privacy basically.
Currently for the first generation software, it’s connected to our node. I think Trezor is doing the same thing because just like Trezor, we are a multi-chain wallet, so if you are building a multi-chain wallet, software structure wise or development structure wise, it’s easier to send a message to your own server and ask your own server on your own node—or the vendor’s node—to give the user their balances. And the other verification information. It’s much easier to build the multi-chain wallet on this structure. So for Cobo Vault first generation, we follow this structure currently, and also it’s a mobile app. So we’re not supporting connecting the software, wallet to a full node or something like that.
For the second generation, for the most normal or average users, we will still follow the strategy, but like I said, the QR code is easy to encode and decode. So you can easily make it compatible with Electrum or with your full node, with your Bitcoin Core, it’s very easy. Also for the second generation, in our roadmap we are going to develop a SPV software wallet on the mobile site for Bitcoin only. It would be SPV so it will have better privacy protection than the normal version of the software wallet, but it’s not as good as full node. Again, if you wanted to play with the full node with Cobo Vault, currently I think the solution for you is do it with Electrum or Bitcoin Core.
Right. And speaking of privacy, I want to ask you something else. So let’s say that I go on your website right now and I ordered a Cobo Vault for $479. That’s the price right now. And are you going to store my home address or does the Cobo Vault have a serial number that you can track and associate with me as a user?
The website where you place the order, this website is built on Shopify. It’s not built by us. Shopify is a Canadian company that provides this eCommerce platform, or you can call it an eCommerce solution, for companies like us. You can also take Shopify to WordPress if you wanted to build your own blog. So it’s just a platform. Your order information is not stored in our server, but it is stored in Shopify’s server. And here another thing I can share is that Shopify has a really strong bounty program. If I remember correctly, Shopify has the highest paying bounty program on hackerone.com.
So you can take Shopify as a eCommerce platform that is the most secure eCommerce solution currently in the world, even though it’s not very cheap—it is much more expensive than other competitors. So we use Shopify and your address is in Shopify’s server, not in our hands. And for our second generation, for your serial number, we never transfer your serial number back to our server. So that means, if you use the software wallet on the mobile site, we will see that the crypto moves from here and there, but we cannot associate those funds with a specific serial number of the hardware device. And later after we open source the firmware, after we open source all the code of the second generation Cobo Vault, I think it’s very easy to verify that we didn’t transfer any serial number back to our server—this kind of thing. It will be very transparent.
All right, so there is no way for your company to know that it’s I who owns like 0.5 Bitcoin and know that because I connect to your servers basically.
Yeah. We know that someone is using Cobo Vault and he has 0.5 Bitcoin. We only know someone does but we cannot associate this 0.5 BTC to a specific serial number or to a specific address. We cannot do that.
Yeah. I think everyone of us should pay attention to the privacy because the privacy is like the future of your security. If you don’t pay attention to your privacy one day you or your assets would be lost.
Yup. It’s like a predetermining factor. If you give away too much information, people can just collect it and figure out patterns and see stuff and they can social engineer to find out more about you and what you do and any kind of information that you can also put into passwords and stuff like that. It can get hacked. And with Bitcoin it’s even more delicate because unlike your bank account where your money can be recovered by the bank, there is no third party that can recover your Bitcoins ever. So I guess this is the worst kind of hacking. If somebody steals your TV from your house, I guess you can find that TV by serial number.
Yeah. And usually I look at this whole community and I realize that Bitcoiners are much more cautious about both their security and their privacy. And sometimes I ask myself, why doesn’t this happen to the Ethereum people? Why do they seem to be so confident about their light wallets on their phones? And they don’t care much about running their full notes to validate their own transactions and be sure that the balance that they have is actually real and is verifiable according to their own full nodes. Why do you think that these altcoins holders don’t care much about custody and security?
I think for Bitcoin and for altcoins, just like you said for the chips, they’re not born equally or they are not born in the same situation. So for Bitcoin it was born to fight against the bad privacy situation under your governance. And also the purpose of Bitcoin is to give you full financial sovereignty. I think that’s the whole purpose of Bitcoin. And after the birth of Bitcoin, everyone is trying to improve Bitcoin to achieve that. So from my perspective, privacy and the security of your assets is naturally born with Bitcoin and everyone takes that for granted. If I own some Bitcoin, I want to maximize my security, my privacy to better protect my assets from other third parties. But for other coins like Ethereum or EOS or TRON or anything they were not born for this purpose. They were born for building another world computer or they were born to build another ecosystem for something else rather than for security and privacy. All the coins, BTC or other altcoins, they have their own positioning. For Bitcoin it is helping people to gain your personal or your financial sovereignty. So that’s why I think BTC HODLers care that much about security and privacy.
All right. So Lixin, I’m not sure if I have any more questions for you at this time. So I want to thank you for your time and I know it should be kind of late in China right now.
I think we have done that a lot of work on the second generation and with the first generation Cobo Vault it’s proved with the miners here to be the most secure hardware wallet in China. And with the second generation we see—with a better price, with PSBT, with QR code completely air-gapped interaction—we want to help more people in the States or in Europe to better have their crypto in security hardware wallets. That’s what we want to do. And also we’re open to cooperate with any third party wallets to make the products work together and also we are open to any opportunity to co-brand on the Cobo Tablet. I think that’s the final word. Thank you.
Yeah. Thank you too. Thank you so much. By the way, I really liked the intro music of your podcast. It makes me feel really futuristic and something very cypherpunk. I really like it.
Here are two reasons why Slush is a pioneer: his documented involvement in Bitcoin dates back to 2010 when he launched the world’s first BTC mining pool, and he also co-founded Satoshi Labs – that company that developed the first hardware wallet prototype in 2012 and brought Trezor to the masses just a year later.
He wears the badge of honor of having made Satoshi Nakamoto himself respond to his groundbreaking approach to mining, and the industrialization of BTC mining (which deems Satoshi’s “one-CPU-one-vote” idea obsolete) is also owed to his contributions.
In this episode, Slush talks about his sustained efforts to deliver greater Bitcoin security with Trezor. Throughout the interview, the Czech bitcoiner explains why he believes that physical security is an illusion, and makes the case for strong encryption software (passphrase, Shamir Backup) as an alternative to the hardware limitations.
Also, Slush expresses his opinions on Trezor’s main competitors by highlighting a positive part before presenting his criticism. The companies involved in this discussion include Ledger, Coldcard, BitBox, and KeepKey.
30:40 – What can’t be verified about the Coldcard?
33:23 – Is physical security a marketing trap?
35:56 – What’s to like about the BitBox?
37:30 – What are the tradeoffs of the Trezor?
38:23 – Shamir Backup
45:10 – SLIP doesn’t stand for Stephan Livera Podcast
46:48 – Software before hardware
48:01 – Why is the Trezor so expensive if it’s so basic?
48:55 – Other companies taking Trezor’s open source software to create cheaper hardware wallet clones
54:12 – Is there demand for the BTC-only firmware?
55:33 – Multisig on the Trezor
1:00:39 – Who should use a multisig setup?
1:02:30 – When should you get a hardware wallet?
1:09:10 – Local software application for Trezor
1:12:00 – Running your Trezor with Electrum or Wasabi
1:13:05 – Does Trezor collect any user data?
1:16:30 – Trezor doesn’t know who you are
1:18:23 – What are Trezor’s future plans?
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Please keep in mind that this is just an ad for a sponsor of this show. It’s not meant to serve as financial advice, and you’re responsible to do your own research before buying anything and act according to your own decisions. Embrace your financial sovereignty with agency and precaution.
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Hi there and welcome to Season 4 Episode 8 of the Bitcoin Takeover Podcast. I am Vlad and it’s very hard for me to contain my excitement, but my guest today is Slush, who is responsible for creating the world’s first mining pool for Bitcoin back in 2010, and also he’s a co-founder of SatoshiLabs, which is responsible for developing the Trezor hardware wallet. And it is because of his efforts in this field that we nowadays have this whole industry of private key security and hardware wallets and all these feuds between companies and that all started from him and his ideas. So thank you very much for your efforts, sir. And welcome to the Bitcoin Takeover Podcast.
It’s an honor. So before I proceed with the questions that I sent you via email—and that was standard procedure for all of the guests this season—let me just ask you, how did you first come up with the idea of creating the hardware wallet?
Yeah. When I started with Bitcoin in 2010 I spoke to many people who was also considering getting into the Bitcoin and analyze it. It’s harder and harder to explain—for them—how to do proper security setup because most of the people connect to Windows or they are not tech savvy at all. And I found out that the Bitcoin is not ready for mainstream because it’s too technical to do this properly. So I am thinking how to solve this issue and bring some solution—not necessarily the hardware—but some solution which could solve this and give these people easy way for managing the lifecycle of managing private keys—so-called Bitcoins. So we are thinking about this with Stick (@pavolrusnak), we met already in one Bitcoin meet-up here in Prague, and we are thinking that some hardware device like we know it now, but we really didn’t want to start hardware startup because it’s just too hard to do hardware properly. So we were waiting, if somebody else will come with something like this, and in 2011 there was I think the first conference in Prague. It was 2011 Bitcoin conference and there was some guy talking about the hardware Blackberry I think on Arduino or something like this. And we were like, Okay, so he’s going to do this—we are not interested anymore. And actually one year later we met again and we both realize that his project failed—he isn’t going to make this happen. So we were like, Okay, let’s do it. We took some points, like we decided to use HD like BIP32 wallets instead of importing separate private keys and so on, which was the best standard BIP in these days. And long story short, we are here with some product which created a whole industry.
Yeah. And that’s very admirable. What’s interesting about the Trezor in itself is that it uses very common parts that you can outsource by yourself. If you find yourself in a country that cannot receive shipments from outside and you just want to create a hardware wallet for yourself, you can just build it from common parts that you find in electronic stores or various places where you find chips, right?
When we were thinking about the Trezor design, we were considering all the options like general MCUs, secure elements, and so on. Our idea or our mission was to bring some solutions which are really in line with the Bitcoin philosophy, which is built on open source and auditable codebase. No gatekeepers. You know, Satoshi pulled himself out of the project, eventually. So this is our really strong thesis, really strong philosophical motives, and we wanted to be as close to these motives as possible. So we end up with the parts which are not bound with any secure element agreements and so on. And yes, you can buy your own parts and put your own Trezor together and audit all the code from our GitHub and then run it on your device and you are completely independent to us.
Yeah, that’s really admirable. And before I move on and ask you the questions that I sent you—and there’s 10 of them—I just want to make a remark that’s based on my experience doing this Season 4 podcast that has been entirely about hardware wallets and cold storage. And I have spoken to Peter Todd and also LazyNinja, who is a guy who attacks hardware wallets, and they both said that if they were to choose just one hardware wallet to use then it would be Trezor because it’s the most transparent, it has been around for the longest time, and it has been the most tried and tested all these years.
Yeah, that’s great to hear. I also know that Peter Todd is not using hardware wallets and it makes complete sense for a person like him because he knows so much about the security and about his threat model and about the programming and so on. Maybe he can secure himself even without consumer products like hardware wallets. I completely get it. And as I told just before, the aim is basically to pack all this knowledge, all this security into the device which can be used by people without all these skills. Still there is a long mission of educating the users how to do this properly. Like all the phishing techniques and so on. They are mostly nontechnical issues, they are why people have to understand how Bitcoin works. And they still need to know what’s the private key and what’s the recovery seed and that they shouldn’t write down the recovery seed into Messenger and send it to anybody. There’s still so many things to do, but at least there are hardware wallets which can make it much easier even for the masses, for everybody.
Yeah. So this leads me to my next question, which is why should Bitcoiners use a hardware wallet and not resort to something like cold storage on a paper wallet or a steel plate or a brain wallet or something?
Yeah. I think paper wallets and things like Coldcards are a great thing, but they don’t solve the whole lifecycle of the product or of the private key. Like, SatoshiLabs, or Trezor, assisted and gave feedback to CryptoSteel, how to design the steel backup for the recovery seed but still it’s just a device for preserving the recovery seed. But the lifecycle of the recovery seed is much more complex. At first you need to create the recovery seed in this safe place in [inaudible] that way the entropy is not broken. It’s actually a really hard thing and there are even issues with some Android phones and with some desktop computers which had broken hardware random number generator. So even this part may be tricky and even if you have a paper wallet or you created your CryptoSteel with that, at some point of time you will want to spend these Bitcoins.
And this is also really tricky, because you can be safe all the time, but once you need to sign a transaction or even discover the UTXO from the blockchain which are yours, you need to do cryptographic operations and you are likely going to do them in your head. So the hardware wallet itself, complete lifecycle of private key and also the hardware wallet itself is designed in the way that it has as much a small an attack vector as possible. Like the codebase is open source, so it’s auditable. It’s actually pretty short. It’s really possible for a single researcher or a single guy to read through all the source code and verify that it does exactly what it should, which is quite popular. We have so many contributors and external security researchers doing this and helping us to make the code stronger and remove all potential doors for any attackers and so on. So the hardware, what makes all of this, are the users.
All right. So let’s say that I just got into Bitcoin because I saw the price increase and I think that this is the future of money or something. And I want to buy a hardware wallet to secure the $500 of Bitcoin that I just bought. And why should that device be a Trezor and what makes it special compared to the competition? Because if you go on Twitter right now, it gets very confusing for newcomers.
Yeah. I think it’s pretty easy, but even for me, it took me quite a long time to realize—how to say this in an easy way? For me the main difference between Trezor and basically any other hardware wallet is the parts which we are using. And actually, using secure elements—I will answer this later—is so tempting, because you can just buy some chip which manufacturers tell you is secure. You put it into your hardware and tell to your customers, Okay, we use secure elements so our solution is secure. So you can rely on it with your security. And that’s basically what people want when they are finding out the proper solution. But there’s so many things in the middle of lines and it’s necessary to understand better how all the chip industry works.
And what I want to say, all the difference is called NDA. NDA means nondisclosure agreement. And this is some sort of contract in between the chip manufacturer and the company using these chips in their product. And the main difference is that Trezor doesn’t use any parts which use any NDA-covered chips. You can have full data sheets. You can buy these chips freely and also the most important part, you are not, you are not to bound with the manufacturer in any way that you can’t tell about what you know about the security of the given chip.
So when I explain this from another side, if I build, if a solution with an NDA-protected chip, close agreements with the manufacture which prohibits me to talking even if I realize that there are some particular issues with the chip, talking about this publicly to the parties which do not sign this NDA, this is a huge failure for this industry. Like, so far and we use this many times, when some researchers reveal there’s some issue with the Trezor, we are free to talk about this on our blog and we do, we did this many times. It’s all about the incentives of us as the manufacturers because as we don’t know any venture capitalists and nothing like this behind the Trezor. Our customers are, we want to make a product which is absolutely in line with the interest of our customers so it’s a very difficult question, if we can tell them how they should improve their security. But if you sign the NDA and you get to know about something, you are on the opposite side, you must comply with the manufacturer. And this is something which we don’t want to do.
Yeah, that’s definitely a plus for the Trezor because everything transparent and you can even build one yourself and it’s very easy to audit and to tell if there is a security issue and it’s also faster to fix issues if you find them.
Yeah. There’s so many details or answers to this, like we started to work on Trezor with the understanding that the hardware itself, like any hardware, is broken. The industry works in general in a non-transparent way. The hardware industry is like 20 or maybe 30 years behind the software industry with all the open source companies and all the open standards, which we see in the software industry. This is nothing what you can follow in the hardware industry itself, it’s all banged together with intellectual properties, all with the contracts. It has, so it’s very non-transparent itself and we just refuse to bind ourself into all this industry which we don’t simply agree with. So we actually know, once you understand that the chip itself is broken and we never promised any physical security of this particular chip because even the manufacturer never promised this, we built the threat model around the Trezor in the way that if you care about the physical security, if you can solve it and do not rely on the promises of the vendor, or the other hardware wallets, basically saying, We use secure elements and you can rely on some level to this security promise, but they don’t give you any advice.
They don’t give you any tool how to evaluate this promise. So me as a user, when I’m modeling my threat model, I really don’t know if I can rely on the secure element for $1,000, $100,000, $1 million? I really didn’t know how to evaluate it. So if I care about the physical security and I see that I can’t audit the chip, when nobody can audit the chip, I had to have some other solution to protect myself from possible insecurities or possible backdoors in the chip. And this answer to all these questions since the beginning, since we designed the Trezor, was passphrase. And what is changing is our understanding about the chip security. Like 10 years ago, there were no specific ways how to read out some chips and they are here now. So this changed, but the original philosophy is still staying strong because with the passphrase you actually can calculate the attack cost of your device because you can calculate the price of the brute forcing the passphrase itself. You cannot do this with secure elements, and it’s just about your trust into all this supply chain to what level you believe all of their marketing claims. And in the extreme philosophical case, you are in Bitcoin, which is strongly anti-government, and these cypherpunk concepts which happened to be a reality. And then you are buying the device which is certified by a government agency that it’s secure? That’s my concern. So I don’t want the trust, I want to verify and secure elements, or all the chips, not only the secure elements, all the chips are, from my perspective, broken by design. You can’t verify this. So let’s build the security with this in mind and provide a solution which don’t promise what you can’t prove, basically.
Yeah, that’s definitely an interesting point of view. This leads me to my next quasi-question because it’s a series of questions and all the guests from hardware wallet manufacturers have been asked to say something nice and something terrible about their competition. So do you have any preference regards to the company with which we should start?
Well, I usually don’t speak about the competition unless they speak about me and I have to somehow defend my objectives and my sense. So I don’t know where to start basically.
Yeah. So I think their approach is great for the masses, they have a perfect product designed for masses. There’s everything as it should be when you are buying into the product. From this perspective, it’s okay. The bad stuff is that philosophically I don’t think it’s aligned with Bitcoin. And that’s the point. This is a point which everybody has to answer by himself: why I am here, and if I am here for trusting somebody else. You see, it’s my point. As I said, with all these NDA secure elements, I simply don’t get that the Ledger is using “Don’t trust, Verify” motto together with using NDA secure element chips audited by government agency. I would rather see any way than this.
Okay. Well, what about to KeepKey because it’s kind of a clone of the Trezor and that doesn’t have a secure element, but at the same time it’s owned by Shapeshift and I think nowadays it doesn’t even have a proprietary software of itself and you connect directly to their platform and you KYC and I gave away some details but can you say something nice and something bad about KeepKey?
Honestly, I don’t think that KeepKey is a serious player or a legit player in the field anymore as they are [INAUDIBLE] development on the fundamental development for years. So I don’t consider this as a serious player.
Yeah, the BitBox and the Coldcard use basically say, physical, like the same design, security design. And I think this design is quite good, but it’s still selling the snake oil. When you check the Coldcard homepage they are promising the security that they can’t prove it, period. So a Coldcard with the form factor is a great story for geeks. I think they have many interesting features which are available for advanced users and so on. So I think there’s space for this and a BitBox is much more mainstream. I think they are in this way. So, so far, so good. I still have a issue that they are promising what they can’t prove.
Okay, that’s interesting because when I was at Bitcoin Magazine, I wrote an article about Coldcard open sourcing their designs so that you can build your own from parts. So I guess they took some inspiration from Trezor from this point of view and they want to look more transparent. But what is it about the Coldcard that you cannot verify?
Yeah, there’s the secure element chip which is used for physical storage, storage of the seed, and basically this chip is free for sale. And the short data sheet is public but still for getting the full data sheet, which has some useful information for integrators, you still need to sign NDA. And this is all about the same. Also they are claiming that it has this chip, this secure element, and it has some specific parameters that they can’t out of this, it’s still a blackbox, and this is an important part. I admit that even if the chip is [INAUDIBLE] then the security is as strong as a Trezor. Like if you consider the secret element [INAUDIBLE], then the physical security falls back to the Trezor. The difference there is a huge difference because we admit that this is a possibility, that the hardware is hacked. So we build the user experience around this and we had the passphrase support and we speak about this quite openly. Now if you are considering physical threat as an issue for you, you should use the passphrase. On the other side Coldcard is not saying this, and they are relying on the security of this chip. And so this can create false sense of security, which is really, which may be turned to be provable.
Okay. So I got to ask you, because I also saw some tweets about this from you and you think that this part about physical security is just marketing crap because I remember somebody from Ledger once said that their devices are so safe that you can buy them from eBay and are going to work. But it doesn’t really work like that
Yeah. Oh, well nobody really knows if it is safe. That’s the point. And yeah, I feel like I’m repeating myself. I hope I was clear what’s my attitude and in recent days I read it. Okay, you should stop talking about secure elements [INAUDIBLE] because you are really like 7 years with the product, the Walkman, behind others, which already has secure elements. This is complete misunderstanding of our concept. Like I have Trezor with secure elements on my table. We have R&D in this area. But we still don’t think any of these solutions is strong enough to really deliver this product and say to people: you can trust this. So even if we will deliver some solution with secure elements, we’ll be talking about the passphrase, educating about physical threats in the secure element. And in the end I think it’s pointless to add secure elements at this stage of the chip industry because if you add this into the hardware design and don’t promote it as a, as a solution for physical security, why even bother to put it into the Trezor. Yeah, I mean we really made our homework, we are in the in the business for many years and we made our homework and a lack of secure elements in the Trezor is not the result of our inability. It was our decision.
Right. Let me just get back to the BitBox because I feel like you left them behind a bit and you just put them in the same basket as Coldcard. And when I had Jonas Schnelli and also ??????, they spoke very nicely of Trezor. So I feel like you should at least, even though you’re going to be critical, just say something specific about what you think about BitBox
I think that BitBox is doing it well, like I think they are recognized players on the market and that they were so far very cooperative so this is what I like. I like the product. Yup.
Yeah, of course the story is, it’s still the same. I understand why they put it there. I understand that it’s easy marketing to just check. Secure element: Yeah, yes we have. You are safe. But that’s the point of the [INAUDIBLE] Unless you can audit it, not necessarily you, but unless anybody can audit it and unless anybody can calculate the attack into this stuff, I don’t think the secure element is [INAUDIBLE].
Okay. Let’s move on and talk about something that people usually point out when they talk about hardware wallets and this is trade-offs. And do you think that the Trezor in its design has any kind of trade-offs?
Of course. I would like to have impenetrable hardware because it will give you much better user experience and your user experiences is something we take really seriously. And of course the passphrase itself is making the experience much worse. But yeah, we know the reality. So I think we will need to live with passphrase for many years unless something magically changed in the hardware industry. And this is a downside of our design. Yeah.
What about Shamir backup? I remembered that was a very big improvements when it first came out and it was a massive discussion that was started in the community and I think, up to this point, Trezor is still the only company that has that implemented.
Yeah, this is a really good point. I think that current situation of hardware wallets, it’s stuck on the discussion about the secure element itself. If a full secure element certified by foreign government agency is the best solution or if the physical storage is the best solution or if the general MCU is the best solution. Generally I think this is very minor. This Shamir has a small place in the overall threat model. And I understand this is a topic because it’s quite easy to communicate to users. That some hardware wallet has something better than others. So it’s easy to talk about this, but I think that overall threat model is much more complicated. And what’s not discussed enough in my opinion, is the lifecycle of the recovery seed itself. Like why do you talk all the time about the secure elements when the hardware wallet print out or generates for you, the recovery seed, which you have in your pocket and it’s not covered by secure element, you’re not covered by the passphrase. It’s just a piece of the paper which holds all your millions in Bitcoin.
So I think the security of recovery seed is a second part of the story of hardware wallets. You know, hardware wallets, or Trezor, solves the biggest issue of these things, like moving the private keys from ordinary environment to the secure hardware with limited attack vector, with auditable code with all this research on the on the hardware possible and so on. But it’s not the end of the story. You still have to put private keys somewhere because the hardware itself, like the standard consumer electronics is really unreliable and you can’t count on the faith that it will survive like 10 or 20 years. It’s clearly possible that in 10 years if you turn on your hardware wallet, it will be just blank, it won’t boot up. So we move the private keys from the online world to the really limited hardware and yeah, we are discussing all the security issues with the chips and so on.
But the next part of the story is to solve what to do with the recovery part itself because that’s the most vulnerable in the whole story. And our answer to this complex topic is the Shamir backup, because until now, until we release the Shamir backup, users were really creative about what would do with the recovery seeds. Somebody just doesn’t care, which is probably not great, but somebody even, and that’s the worst when the user thinks that he is a power user and he’s going to create some custom security setup, which I never recommend, they like shuffled the words in the, in the order they want to remember. And when they forgot the pattern, how they shuffled the words they are screwed or they will try to split the recovery seed into two or three parts, hiding the parts on different places. But they usually don’t understand that it may be possible to calculate like those last few words.
So we introduced the Shamir backup to improve the situation and give another tool to the users how to manage the recovery seed. And basically it allows a cryptographic soundwave to split the recovery seed into more chunks, more shares, in the way you can customize how many shares you need to recover and how many shares is in total. So it allows [INAUDIBLE] and it also allow geographic backups. Like you can split your seed and have all your share in other city or even country. And even if somebody’s steal a small portion of small portion that is defined [inaudible], they can’t go or anything from this share which can help them brute force the rest of the shares. So I think this is really important. I explained it. Other wallets will somehow implement this or some similar [INAUDIBLE] in the future. I know that there are some [INAUDIBLE] working on support of SLIP39 into their solutions and I think it makes complete sense. And for that reason we make it, again, for the open source because we really want to encourage the industry to [INAUDIBLE] the standard because we believes it’s another important step in the development and evolution of the [INAUDIBLE] security.
Yeah. And for the people who are not aware of slip doesn’t stand for Stefan Livera Podcast. It’s actually Satoshi Lab’s improvement proposal. I feel like sometimes you get lost in explanations and maybe that the average user will not be aware that there is a huge development laboratory that you have with SatoshiLabs and you’re trying to constantly find new ways to improve security for hardware wallets.
Yeah, we are spending quite a lot of time, uh, researching all these standards. Like we back in days we created BIP39, which is now used by absolute majority of all the wallets. It’s like a widely used standard, and also standards for derivation paths for Bitcoin or altcoins [INAUDIBLE] and so on. So this is where we really want to move the industry forward and actually we are living from selling the hardware, but if we see the hardware itself just as a piece of the much bigger picture and we are spending a lot of time thinking through all the cycle, how to improve all the industry and we just don’t want to insist on fighting over the details in the hardware itself.
Yeah. Because you have said it from the beginning, when you first started with the Trezor, you’re actually thinking in terms of software and you were reluctant into getting into hardware because it’s complicated.
Yes. In this big picture, it makes sense to make a limited hardware, as cheap hardware, with no special inside, because it will make work. Basically Trezor is a reference diagram of the microchip—MCU with two buttons—and the display—there’s no magic in it. All the magic is the software and the security design in this software, which cover all the attack vectors, including the physical attack vectors. There is no magic soup in the Trezor.
Yeah, and some people will look at the Trezor and they will say, Okay, so if it has this cheap microcontroller unit and it just has buttons on the screen, then why does it cost €120 or something for the Model T? The answer is that they pay for customer support and development and research and all that stuff, right?
Yeah, exactly. The other one cost I think $49. So it’s not $100 anymore, but people underestimate the effort in R&D which we put into the software part. I always say that SatoshiLabs is software company. The hardware for us is just a tool. It just needs to do the thing. But all the magic is in software, which is for everybody.
This was a topic few years ago when KeepKey started when all the Chinese clones started—that’s interesting—I didn’t know, but my colleague told me two days ago that they made research and there’s around 40 clones of Trezor, like some international vendor doing hardware wallet based on the Trezor scheme and so on. I didn’t know this. I suppose this is part of the open source and all the standards and all the code and all the electronics—which is open source—and back in years we were worried about this a bit—if we can do sustainable business on fully open source everything. And I think the conclusion is that, yes, because in the security industry you probably don’t want to save 10 bucks on the knock-off hardware, like clone of the hardware, when you are going to put thousands and more dollars of Bitcoin into the device. So we were a bit afraid of this, but it turned out that the people care about this.
They listen about the possible security issues which comes with buying cheap clones and in the end I think this was a winning strategy. I really believe in open source. Contrary to what @BTChip from Ledger told you that he doesn’t think that open source solves all the issues, I think the opposite. Let me explain. We have so many people watching our hands and doing the security research and even breaking the Trezor and they are all the white hat hackers which are then reporting issues to the product and if you check our security page, there’s a lot of reports which we responded to with some fixes in the software. I believe that this is the result of the open source, because without this, with any obstacles in this, dissuaded hackers won’t do this.
The activity of the researchers is a indicator of the living community, and we were asking a few of them why they spend so many time on the Trezor—and actually not on the competition—and answer was quite interesting for us because to really innovate the chip, or hold the solution which includes the NDA chip, they would need to sign the NDA with the manufacturer, which means that if they will find out something they wouldn’t be able to tell it publicly which won’t give them the social credit which is usually why they are into the research in the first place. For me this was eye-opening moment and I realize that, Okay this is interesting. Most likely the Trezor is most attacked hardware wallet on the market, just because we are basically transparent and it attracts the researchers to do the job.
Yeah, and also LazyNinja—who was the only hacker that I was able to get on the show—also said that he did spend some time on the Trezor, but it takes a lot of time to find some kind of vulnerability because there are too many people doing this and there are lots of eyes on the software and on the device itself and that’s why possibly it’s the most secure of all hardware wallets.
In my opinion, this proves the open source actually works because if it attracts white hat hackers which are then reinforcing the product, it makes the whole industry much stronger and much better.
Now there is one marketing point from which sometimes Coldcard attacks you for example, because you support lots of altcoins and you add them to the software implementation. And you also have a Trezor Model T that is Bitcoin-only and I have to ask: is there demand for that, is it sold just as well as the other models?
The BTC-only software? To my knowledge, it’s supported also for Trezor One and Trezor Model T. We are Bitcoiners in heart so this was a natural thing to do when there was a request from our users. And I completely agree with this, but if you are asking me about the sales numbers, I don’t think it’s measurable or it made any impact. I believe this is important for this small portion of the user base, but it’s not like mainstream requested feature.
Yeah, sometimes people can be mean on Twitter. And that’s why I raised this specifically. So I saw a presentation last year with Stick (@pavolrusnak), who is the co-founder of SatoshiLabs and I think he was in Malta—Tone Vay’s conference. And he showed how you can set up a Multisig where the Trezor and the Electrum software and that was so fast and so simple, but at the same time there are people who criticize the security model and say that the average user should not do that, and Multisig is only for people who require it and not just something that individuals who don’t hold too many Bitcoins should pursue. So what is your stance on Multisig?
Multisig it’s great tool for the multi-user funds. Like if you’re a company, you need to hold some Bitcoins, then it’s great for have co-signers which are different parties, different people, and it’s perfectly fit for this purpose. I think that many people who are using Multisig in the way that they are the only co-signer and they have only multiple devices and so on, I think it’s a bit overkill, and all this is about usability, and so in the increasing complexity of the setup it’s so easy to shoot yourself in the foot with the Multisig. I don’t think it’s necessary for the single user to use Multisig because I saw this from the perspective: if you are user and you want to use these accounts daily then you have proper [INAUDIBLE] backup, distribution of these units.
Plus, of course you still need to care about the backup because I would never rely with my Bitcoins which have private keys stored on the devices, because I understand how bad these devices are in remembering any data, like flash memory can fail at any time. So it’s much more complex and downgrades the user experience because if you use this daily, you need to use multiple devices and do this ceremony all the time you are going to send Bitcoins. And on other side, if you are HODLer like longtime HODLer, you don’t need Multisig either because in this case you probably don’t want to even have the seed loaded in the hardware wallet. What I would recommend for a longtime HODLer is to do the Shamir setup or even Super Shamir setup, which is even more complicated like you can have Shamir out of the Shamir shares itself. So you can have really crazy stuffs here which are really for many advanced users only.
But this isn’t the point. Let’s go back to the story. If you want to HODL Bitcoins, then just generate the Shamir backup, store the seeds properly with the CryptoSteel, taking on the safe place, or give it as a social backup for people you really trust—two people which actually didn’t even know each other or something like this—and then you can wipe the hardware wallet, which will be completely empty and you don’t need to care about all the firmware updates and all the hacks—all these things which we were talking all the time in this podcast—anymore, because you have the metal backup which can survive centuries and software security is not in your threat model anymore. So this is all about not making the setup complex but actually about limiting the attack surface to the state that not only do you don’t have Multisig setup but you don’t even need the hardware wallet at all. And I think this is much, much better solution.
Okay. So at the end of the day, who should use a Multisig? Like should somebody who owns $500 of Bitcoin set up a Multisig or is it for companies that have multiple parties?
Yeah, it’s mostly for companies for use-cases where more users need to co-sign the specific transactions, and I don’t see such a big use-case for single individuals. Of course, there’s so many projects that will co-sign or keep some of your shares for you and ultimately they will co-sign or they will authorize you and so on. But it actually makes the threat model much more complicated and much more foggy than doing this on your own because when you create your wallet with some other party, even if it’s an established player in the field, still they have to know about your—you wrote something, maybe they need to know stuff, so they know you most likely and they know how much money you had, which may or may be not a problem for a threat model—depends on how rich you are and how paranoid are you. But I just want to say that every time you add the Multisig into your setup, it solves some kind of issues, but in my opinion it adds much bigger complexity than the normal user can really evaluate and evaluate the risk.
Now here’s an interesting question that usually pops out, especially when it comes to newbies who get into the space because nowadays it seems like hardware wallets and nodes in a box and all these products are kind of part of the lifestyle of a Bitcoiner, and if you want to be a true community member you have to get one of these, and sometimes you see these small groups of people—I think one is established with Casa and one is established with Coldcard and you see them on Twitter all the time. And when is the point when you should be considering buying a hardware wallet? Let’s say that you have your coins on Coinbase and you’re thinking about getting a Trezor, but is there a specific amount or a specific moment when you learn more about Bitcoin, when you should get a hardware wallet?
I understand that most of the people get into the Bitcoin in the way that they buy something on the exchange and it lies there for some time. And many of people ends there, like the journey ends here for them because they have Bitcoin and they speculate on this or whatever. I think it requires some kind of personality to really want to dig more into what the Bitcoin is. And at this point—when the curiosity starts to appear—then the hardware wallets, the Trezor, is here for them. It’s really convenient and mainstream to just buy Bitcoin on the exchange and leave it there, but you know, Not your keys, not your Bitcoins. So I don’t consider these people Bitcoiners really, they just have another bank account which is denominated in Bitcoin.
And as I said, I’m quite a cypherpunk. I like cypherpunk philosophy and I build everything around this. I think the Bitcoin is changing for the 10 years since I’m in the project. I think it’s becoming more obvious that the privacy is an issue. I honestly don’t think that this was always like this. Like of course there were all the time people paranoid about their privacy, but I didn’t think it was mainstream in the terms of the Bitcoin a few years ago—the mainstream concern. Because the Bitcoin was so small. Even for governments, for everybody. So people didn’t feel threat from this side. Now governments and states are recognizing Bitcoin more and more and it’s getting more probably that there will be some actions like, “Now all the government stuff, IRS and all the American agencies and so on—are we going after the Bitcoiners to tax everything properly and so on?” And I think it makes much more sense to think about the privacy and I think the Bitcoin mainstream is going to realize this more than before. So for this I think it’s also bigger challenge for the Trezor because so far we have been solely on the security part. The security and privacy are two completely different things. Like you can be secure. You can have the private keys but your xPubs may be completely public and you are still secure, from some perspective. Of course you are not secure from the social attack vector and so on, but let’s consider that definite possibility. And to be honest, years ago we are focused mainly on bringing the security to the Bitcoin mainstream user.
So we built the wallet as a web application because it was the easiest way of on-boarding the users because they are used to use a web browser and so on. But as the industry is changing—and we see this—we are developing for one year intensive for last one year we are working complete new solution for the application—frontend—for the Trezor which will sit on the user computer or mobile phone, and eventually use local or remote users on a Bitcoin node. So I think this is the next part of the mission, of self-sovereignty of the user. So far the users can’t buy Trezor from the security perspective—like everything was open source and it was all auditable, but still the user was open to use Electrum or now Wasabi and so on. But still it was not the main application, like main user experience from the Trezor, and now we are working on a solution that this will come out of the box with the Trezor. So we want to give first person experience with software for every user.
Speaking of this, when I wrote that long three-part review of hardware wallets in November for Bitcoin Magazine, I was not able to find a software application that is installed locally and does not that browser extension that is usually the most popular way of interacting with your Trezor device. And I was unaware of the software that you released in 2016. I don’t know why I didn’t find it, but I also know that right now you are working on another piece of software that gets installed on your computer and it’s supposed to provide more financial privacy.
So the client that you were using to interact with your Trezor and it was something that you would install on your computer and you would generate the addresses and keep your transaction history on your hard drive. Just like a full node.
Yeah. Definitely is, we have our backends fully open source, even backends for other coins and Bitcoin, all the altcoins which Trezor supports are fully open source and you can download and install on your computer so you can—even now—be completely independent to SatoshiLabs, which to be honest is quite different story than with, for example—Ledger—has these backends closed source. So if you have some coin there which doesn’t have alternative clients, which just support for the hardware wallet, you can be easily locked out of your money once the Ledger shut down their backends, but Trezor has all this completely open source. But on the other hand, I have to admit that it’s not for normal users. Like you need some little skills to start this and sync it with the network and so on. So our focus is to do this in a way which is suitable for every Trezor user to actually install on the computer with backend of his choice to be completely independent of anybody else.
I’m completely fine with this as no solution fits all. Actually I’m big fan of both Electrum and Wasabi, because Electrum was a huge inspiration for us when we started with Trezor, we learned so many things, how wallets work inside. So I love both products and so I have no problem with people using Trezor with other clients. But on the other hand, I think the user experience is not so great. Of course normal Linux user or power user can do this, but it’s not the user experience which we would like to see when you invest $100 for your security setup.
Now I’m going to have to ask you about privacy and the growing market for user data, because the companies like Chainalysis getting bigger and even though they laid off some employees they get contracts with governments and the IRS and the United States. And when you use a Trezor by default with the browser plugin that you have to install, does Trezor collect any kind of data regarding to your IP address, e-mail address, stuff like that, metadata about your transactions? Can Trezor see how many Bitcoins are owned by the users and stuff like that?
The important thing on the Trezor design is that we can’t distinguish devices each to other when we are shipping them. Like there’s no technical way how we can join the order with the specific device when you connect it to the computer. So at no specific time we knew your real identity even if you buy the device from us. I don’t think—and I think I already explained part of this—is if a typical user is connecting the device to our web application, which is using our backends, which are open source but still they are run by us, so technically we may know balances of the users, [INAUDIBLE] of the users and so on, but on the other side, we don’t do this—it’s our social contact—I think that we have this even on our somewhere, but we don’t do this, it’s not here for us [INAUDIBLE] your metadata, but it’s for the people to have the easy onboarding experience. But we are, as I said already, we are actively working on the solution where you don’t want me to connect the Trezor to our servers at any point of time. So this is to prove that we are quite serious in this and so we don’t want to be the gatekeepers and we don’t want to know anything about you.
That’s fair. Because when I look at the KeepKey right now it costs about $20 and it was $200 like 3 years ago or something, and their business model is to sell in large numbers but you also have to KYC with them. So you sign up with your data when you order and they probably find a way to sell that data. I’m just assuming here, I don’t know if they do that but there is probably a market for that kind of data that they’re collecting and it’s reassuring to know that Trezor cannot associate the order number or the device production number with the user. It’s reassuring to know that Trezor doesn’t know who bought what device. You cannot associate a serial number for one device with the user who ordered it.
Exactly. This is the [INAUDIBLE] part, like you can check the software that it’s not really relaying any serial number or anything over the protocol so we can’t link the specific device with your order. Actually, there is generated some ID which is in the protocol because in the application you need to identify with it, you need when you connect it for quick [INAUDIBLE] details but this ID is generated again every time you generate the wallet. So it’s generated once you connect it the first time into your computer. So we cannot know this prior the shipment. So this is the part we can prove because it’s baked in the open source software, another part which we can’t prove— yet—is that we don’t collect any financial data from our Bitcoins. It’s just our promise. I’m quite open about this, but we are working on this to solve so we can be able to tell that you can verify it’s yours.
All right. So Mr. Slush, We have been speaking for nearly 2 hours and I am just going to ask you one last question and that’s it. And it’s also very general. So what is Trezor planning for the hardware wallet market in the future and what should we expect in the coming months or years?
It’s quite a wide question and I will try to summarize. I think that I already said this during the interview. The remaining remaining topic is the usability of the products and the usability of the whole concept, so it will be more available for bigger parts of the Bitcoiners because it’s our mission to secure as much people as possible. So the usability part is still a remaining issue which we don’t think it’s solved yet. Another big topic which we are working on is the privacy and self-sovereignty, which comes out-of-the-box. So no crazy setups with some Linux boxes and so on because we think this can be, this can go out of the box with Trezor itself. And the last part is that, we didn’t hang up with the hardware security. As we spent the first half of the interview talking about the hardware, I think currently there is no better solution, which can be provable better than Trezor on the market from the chip perspective. And still we are not satisfied with the current situation. We are working on some specific projects which could make this better because we think that Bitcoin deserves more transparency on all layers of the software and hardware stack. And I think I will be talking about this on Bitcoin 2020 in March, so if you are an interest this part, you should follow all my speech.
Yes. And even if you’re not able to come to San Francisco—and I will not be able to come to San Francisco because it’s very expensive—you can still watch that on livestream I think.
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