Lazy Ninja (whom you can follow on Twitter at FreedomIsntSafe) has been around the Bitcoin space for almost 7 years. More recently, he decided to make use of his background in security in order to hack into hardware wallets and make responsible disclosures about the various vulnerabilities he finds.

Most famously, Lazy Ninja has found and reported issues in the BitBox02 and Coldcard devices. For each of his reveals, he used the bounty program and wrote lengthy blog posts to explain his methods.

In this episode, the mysterious bitcoiner talks about his experiences with hacking hardware wallets and gives invaluable advice to those who seek to acquire a new device. He emphasizes on the qualities that matter and explains how new hardware wallets should be approached.

Most importantly, Lazy Ninja gives an insight in the mind of a hacker and should help you understand how and why you should protect your hardware wallets and private keys.

Listen to the episode on iTunes and Spotify!

4:00 – Introduction

5:48 – When did Lazy Ninja get into Bitcoin?

6:45 – Lazy Ninja first heard about the Trezor 

7:43 – When Lazy Ninja first started hacking hardware wallets

8:50 – Are hardware wallets secure at all?

11:00 – Lazy Ninja’s experimentation with hacking the Trezor

12:10 – Coldcard wallet and the age factor in hardware wallets

14:30 – Finding issues in the code/documentation before even touching the hardware wallet

15:25 – What does Lazy Ninja think about the ColdCard?

19:40 – Piece of advice for when your device stops working

20:10 – Is air-gapping the hardware wallet with PSBT important for security?

23:40 – Vulnerabilities found in ShiftCrypto’s BitBox02

32:40 – Which hardware wallet does Lazy Ninja recommend for newbies?

36:35 – Secure element chips, open source, and trust in manufacturers

43:00 – The 2018 wallet.fail Ledger hack

46:10 – On Trace Mayer’s criticism of hardware wallets

49:20 – General-purpose devices and DIY hardware wallets?

52:00 – On the security of Armory, Wasabi, Electrum and Bitcoin Core (hot wallets)

54:40 – Mobile phone security

59:00 – Hardware wallets vs cold storage

1:01:30 – Getting a backup device

1:05:00 – Are multisig setups safe and good for security?

1:10:00 – Is the Lindy effect relevant?

1:12:00 – On CoolWallet, Ellipal, and other new hardware wallets

1:16:10 – Buying the cheapest device if you just plan to ditch proprietary software and use Electrum and Wasabi?

1:17:50 – Cold storage vs hardware wallet

1:20:00 – Are Bitcoin-only hardware wallets more secure for your BTC than the ones with multi-coin software?

1:23:00 – YubiKey and general-purpose devices?

1:26:00 – Bitcoin vs gold

1:28:00 – Blind trust in exchanges vs the purpose of Bitcoin

1:40:00 – Governments turning Bitcoin into a surveillance system through KYC and blockchain analysis 

1:42:00 – Switching to Bisq

1:45:50 – Tweet at us

1:47:13 – Sponsor ads

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Full Transcript

Vlad Costea (00:04:01):

Hi there and welcome to season four episode free of the Bitcoin takeover podcast. I am Vlad, and my guest today is Lazy Ninja who is a hacker of hardware wallets who gets it. A lot of acknowledgement from big companies which produce hardware wallets. And there recently recently was able to find vulnerabilities in the ColdCard and the BitBox that would too. And I think also the Trezor, but I’m not 100% sure.

(00:04:33):

So in this regard, I think he’s a very valuable individual who makes hardware wallets more secure for all of us. And the fact that he finds issues and reports to them for bouncy means that we all get a lot more security from software updates from the companies. She could easily chase owners of hardware wallets and try to steal their Bitcoins. But he’s a very nice guy and she will not do that. So hello, mr Lazy Ninja, who by the way can be followed on Twitter at freedom is unsafe.

Hey Vlad, how’s it going?

It’s going okay so far. I’ve checked the balance and the hardware wallet and it’s still fine. You haven’t hacked it?

Lazy Ninja (00:05:17):

Haha, I have not hacked it yet. However, be careful. I don’t know that I’m so altruistic. Is that that I wouldn’t hack it given the right opportunity.

Vlad Costea (00:05:28):

You don’t have physical access yet because we’re not in the same room.

Lazy Ninja (00:05:33):

Yeah. So, so far all my hacks have been only physical access related. So I’m going to have to sort of broaden out my my scope of attacks I’m looking at here to get ya.

Vlad Costea (00:05:45):

So how did you acquire this interest in half hardware wallets?

Lazy Ninja (00:05:49):

Well, I, I started out in Bitcoin right at the end of 2013, well heard about Bitcoin right at the end of 2013 when it was making its run up to a thousand. And I was like, Whoa, what’s this thing? And so I started investigating it and I was sort of hooked right away. Now unfortunately I wasn’t a massive buyer then, so I’m not yet, you know, a super Bitcoin wealthy.

New Speaker (00:06:16):

But I did investigate sort of, you know, I had ran my own wallet, I ran an armory wallet and I investigated sort of, Hey, how do I protect this key? And so I printing out my key and storing it and thinking about that. But so that was even pre, I think that was pre hardware wallet time. So when did the Trezor come out? Like 2014, 15, something like that. So I think, I don’t think I even heard about the Trezor right away.

New Speaker (00:06:44):

So it’s probably not until like 2015 that I heard about it and started thinking, well that’s a really good idea and it’s actually really silly. I didn’t sort of think about that at all. Like I didn’t, I didn’t even think about, Oh this would be really good for a little embedded device cause sort of working with embedded devices and security is actually sort of my job. So it’s sort of funny how I just didn’t sort of put that together right off the bat. [inaudible].

Lazy Ninja (00:07:14):

But yeah, I think the Trezor was my sort of first interest. And I really also, it’s interesting, I didn’t really think about hacking these devices for a long time. Like so Trezor was my first wallet, so I forgot when I got one, probably early 2017, I think is when I got my first Trezor. And it’s still, for some reason I didn’t think about attacking these devices. I just sort of a generic Bitcoin user.

New Speaker (00:07:42):

And I think it was probably sometime in 2018 was when I sort of, you know, whenever, when everything’s going up, sort of in 2017 we’re all just thinking about price and all that excitement. And it wasn’t really thinking about how I could make money or help the community. She’ll always say, and then, yeah, sometime in probably 2018, you know, during the low times, she’ll always say it’s when I’m like, you know, I need to do something other than just sit here and stare at black folio on my phone and shake my head. So I think that’s when I started sort of looking around at what some of these devices did. [inaudible]

Vlad Costea (00:08:30):

Okay, sorry, I was muted for whatever. So you started looking into the, the devices from a security experts point of view and how do you find them? Do you think that they’re secure? Do you think that they are simplistic in their design? Is it an efficient way to store your keys?

Lazy Ninja (00:08:54):

Yeah. What’s really, so in your phrasing right there, you sort of give away the secret of everything here. The simplicity. And it’s really just fundamentally the simplicity of the device or not, not so much the simplicity of the device, but that the device isolates the complexity of the rest of the Bitcoin environment. So it isolates you from all the complexity going on in the computers and the networking and stuff, talking to the backend Bitcoin network and other nodes and having this device that provides, you know, this isolation and simplicity is the fundamental piece of security that these devices off.

New Speaker (00:09:39):

So even, even if I’ll say this, maybe this isn’t true in all cases, but even if some guy just made their own random hardware wallet in a, in a very simple way, it’s probably more secure than keeping your keys on your computer. So in almost all cases, these wallets do a relatively good job at, at protecting keys.

Lazy Ninja (00:10:06):

It’s only when they get scrutinized very closely that we start finding issues. Now, some of these issues are, are very important, especially when wallets start being sold on scale because the attack isn’t always just on a single wallet. If you can find some sort of software issue with a wallet, you can steal. Well, depending on the type of attack you can not only steal one individual’s funds, you could steal many individuals funds on anybody that uses this wallet. So the level of security needs to be much higher because the value to the attacker is also very high.

Vlad Costea (00:10:52):

So one was the first time you discovered vulnerabilities in hardware wallets. And how did you acquire this taste for being an ethical hacker?

Lazy Ninja (00:11:06):

So the first one I looked at or started looking at, shall I say, was the Trezor. Now I never did find anything with the Trezor at the time. And that was only sort of half-heartedly looking cause I just felt, you know, the Trezor had just been around a relatively long time and it was, you know, well-researched. So I knew anything that was to be found would probably be somewhat difficult.

New Speaker (00:11:33):

But it was really fun to just sort of look at the simplicity of the architecture. You know, if, I don’t know if anybody’s, you know, taking a look at what the Trezor actually look like looks like, but it’s basically just one chip and a display. You know, there’s other passive components around there, but it is just an incredibly simple and sort of fun to fun to start researching. But I knew I didn’t have a lot of time to spend really digging in super deep.

Lazy Ninja (00:12:05):

So I just sorta sat by just sort of keeping my eye on devices coming out. And then the ColdCard came out. And so I decided this was really my opportunity because one of the things about a wallet that really, or I guess it’s any, any piece of software or hardware trying to do security, is the, the age of the device.

New Speaker (00:12:34):

You know, as devices, age, you know, they have more eyes and more people looking at them and more vulnerabilities are being fixed. And so your best opportunity to find sort of the low hanging fruit is on brand new devices. And so that was my strategy on a ColdCard. And additionally, the ColdCard also, what really caught my eye too is it also used a security chip that I had some familiarity with. And I had sort of previously been thinking about how I could use this chip.

Lazy Ninja (00:13:10):

So it’s, they call it, you know, it’s a secure element that always people refer to it as it’s a, it was at the time a [inaudible] ECC 508. And that chip was really what caught my eye because when I was thinking about how could I design a wallet to use this device prior to knowing about the ColdCard or seeing it, there was a few problems I couldn’t solve or I thought it would be difficult. And so as soon as ColdCard came out, I’m like, well, I better take a look at how the ColdCard guys solve these problems.

New Speaker (00:13:47):

So I first started out, you know, I’m, I’m really cheap. You know, I’ve got to say it, got to save those Bitcoin, got to huddle those. So I started out by just looking at ColdCards websites. I spent a couple of hours just reading through their documentation and, and seeing how it works and a few things kept catching my eye there and their documentation [inaudible] and then I’m like, well, better, better dive into the code and take a look. And what’s really interesting is I pulled up the code and it probably only took about 30 minutes to identify the vulnerability that I ended up being able to exploit on that device.

Lazy Ninja (00:14:31):

Really. So you are able to find the vulnerability just from the documentation. Yeah. Well the documentation. Yes. So the, the written documentation on their website sort of gave me some hints of what that may get. It gave me some suspicions and so once I had those suspicions, then I had some idea of where I should be looking in the code. And so yeah, once, once it got to be looking at the code, it was really just sort of verifying, well there were a couple of different things in the code than was explicit in the documentation. But

Lazy Ninja (00:15:07):

My, my suspicions were correct in the areas of the code that I thought might be vulnerable. And so I was just immediately able to open, open the project and, and find what I was looking for.

Vlad Costea (00:15:21):

So what do you think about the ColdCard? It gets a lot of praise on social media. A lot of people talk about the PSVT partially signed chain Bitcoin transactions, which allow you to never connect the device to an internet connected computer, which is huge because you’re just sync with an SD card. And that’s able to do many operations on device, which makes it

Lazy Ninja (00:15:48):

Sure.

Vlad Costea (00:15:48):

But at the same time I saw that a lot of people reported small vulnerabilities and bugs in it. And you’re one of them. What is your general impression? Does it live up to the hype?

Lazy Ninja (00:16:03):

So the ColdCard guys did some, did some really good things. So I think they have a, they had a good sort of architecture strategy. So in sort of an how, how they design the chip and some of the features they added in. I was really impressed with. So, you know, using the secure chip is a very important feature. What we can get into later and it protects against the number of attacks that some of the other wall, let’s have circum too. And then they also add a couple of other subtle, you know, a few things they have in there I don’t find as valuable as they’re sold. 

Lazy Ninja (00:16:40):

For example, you know, the, the duress pen, you know, it’s, it’s, it’s, it’s interesting, but if somebody, if somebody knows you’re, your ColdCard is actually a hardware wallet, they quite possible they’re familiar with the architecture of it and so they’ll know these, these different types of pens. So I think the guy with the wrench can still tell you, don’t enter your dress pen, enter your real pen.

New Speaker (00:17:08):

Um a few things like that. But I mean it’s not, it’s not a bad feature. It’s a nice feature. And then there was a couple of other good ones too, like a during pen entry they display sort of a unique identifier that’s unique for that device and your pen halfway through, always say your pin entry. [inaudible] That actually, that’s a really good feature. It really helps, you know, a lot of my attack minded thinking has to do with, you know, stealing somebody’s device and not letting them know you stole it.

Lazy Ninja (00:17:43):

So forget, for example, attacks that take is actually related to the hack on the cold. So we can get into that a little bit more detailed. But I’d just give a quick overview. So, so basically I had an attack on the ColdCard that allowed the brute force scene of pin code. But it was really slow, like, so you just had to use the gooey on the device to force it.

New Speaker (00:18:06):

So it takes, you know, five, 10 seconds per guests. So take a really long time. So if it takes, you know, four months to force somebody’s pen, if somebody doesn’t have their wallet, they’re going to get a new wallet, possibly, you know, if they realize it’s stolen, they’re going to move their funds. But one of my lines of thinking on how to make attacks that require theft more effective is you don’t let the person know you stole their wallet.

Lazy Ninja (00:18:39):

So I steal your wallet and I do my slow or long attack. Maybe I shipped the wallet to a lab and they do all sorts of stuff in order to try to extract information. But if you know your wallet’s, it’s gone, you’ll move your funds. So one thing I like to do in, in general in this thinking is you don’t steal the wallet, you actually replace it. So I’ll take your wallet, but I will replace it with a bricked version of your wallet such that you don’t know your wallet was stolen.

New Speaker (00:19:11):

You just think your wallet stopped working. And this can be effective for the ColdCard too. Cause it’s like if you get your ColdCard one day and you plug it in and the screen just displays a bunch of garbage, you’ll think, Oh crap, you know, something happened to it and you’ll just go buy a new one and set up the new one.

Lazy Ninja (00:19:27):

Not realizing that somebody may have actually stolen your good one. Replaced it with a Domeen as busy brute forcing your pen. So I guess that’s one piece of advice for people is if your wallet ever stops working for some reason it’s probably a good idea to move your funds to a new Steve unless you have it stopped working cause you dropped it in the Lake or something yourself.

New Speaker (00:19:54):

And you know what didn’t stop working because that is one of the attack vectors I was thinking about to make these attacks more useful. But one of the other things too, you know, you mentioned the PSBT and the [inaudible], the SD card one of the, that’s another feature that’s a little bit over-hype. I mean it’s useful but it’s, it’s not quite as valid label. Some people think, I mean there is value but not quite as much [inaudible] because air gaps, Mmm [inaudible] you’re still plugging an SD card [inaudible] ColdCard, you know, so here’s the trap.

Lazy Ninja (00:20:39):

So people say, okay, so you can have, you can connect the wallet maybe with Bluetooth and your computer can pass, you know, the transaction information over Bluetooth. Or you can connect your wallet with USB and now your computer can pass the transaction information over USB. Or you can plug an SD card into your computer, copy of the transactions onto it and plug that into your wallet.

New Speaker (00:21:07):

And the only difference is really that the connection between the computer isn’t real time, but somebody can still give you a not a [inaudible] real SD card. So it again, this sort of fall back to a physical attack. But let’s say, you know, I go to your house, do you have a party at your house? And I see your ColdCard. Now this isn’t a known attack, that’s just a concept. And I replace the S an SD card you have in your house or an SD card near your gold card or maybe you have a plugged in or whatever with a malicious one.

Lazy Ninja (00:21:49):

And my SD card looks just like a real SD card, but I’ve actually replaced the firmware on the SD card. So the SD cards actually have little chips in them that run software. It’s not just pure hardware. There’s chips that run software on those. So I can either, sometimes they’re updatable, sometimes they’re not. Or I could make my own and I can replace yours such that when you plug in that SD card into your ColdCard, that SD card might not correctly implement the protocols.

New Speaker (00:22:20):

And maybe I have found some sort of buffer overflow type of error. If I incorrectly implement the SD protocol or maybe the fat file system or in one of those stack layers on your MCU, I might be able to cause a vulnerability just through a malicious SD card, you know, so anything you plug into your wallets, you know, has the potential of exploiting that interface you’re connecting with.

Lazy Ninja (00:22:49):

Now, the one thing that is useful still is the SD interface is much simpler than USB or Bluetooth. So it’s, it’s easier to not have made a mistake implementing that in software. So, and then also, you know, it may be hard to corrupt the firmware or replace an SD card more so than corrupt the computers USD stack to make a volition. So there’s some benefits there.

New Speaker (00:23:22):

But you know, Eric air gap is a little oversold cause it, it’s, it’s a gap, but you’re still making a connection across that gap with the device. And it’s all about evaluating the complexity of that connection, which is SD versus USB. Oh, really? Promote adversarial thinking. I only think about scenarios where you’re able to physically access

Vlad Costea (00:23:46):

And compromise Harbor wallets. So the other big discovery that you have made, and I think it was this week that the article got published on the website of chef crypto. And that was about the big box though too, right? And you’re able to find some kind of vulnerability and

Lazy Ninja (00:24:05):

Yeah, that’s right. So it’s funny as I, I actually found basically, you know, a different method, but I found the exact same attack that I found on the ColdCard. So apparently my adversarial thinking is very focused around just sort of one thing apparently.

New Speaker (00:24:21):

But yeah, so with the, the BitBox, so to again, my, my strategy for choosing it was exactly the same as my strategy for choosing the ColdCard, which is, it’s a new wallet. And so there’s most likely going to be some low hanging fruit on it that I should be able to find something quickly. [inaudible]

Lazy Ninja (00:24:45):

And so what I was able to do with the BitBox too and I, maybe I should tell exactly what I did with the ColdCard too. I’ll, I’ll, I’ll talk about the buy box and I’ll say exactly what happened with the gold card, but the gold card, actually, there’s some good, a good write up, you know coin guy that actually a good writeup of it. So people can read that as well too. And, and I also have a write up, but I’m the BitBox there wasn’t a significant writeup on it, so I, I think I’ll go into some detail on that. [inaudible]

Lazy Ninja (00:25:15):

Oh, sorry. For the cold here. Blood. So when I first got the BitBox well let’s, let’s see, how should I start with this? So again, my strategy is the same. So I saw Hill, Hey look, there’s this new wallet just appeared on the market.

New Speaker (00:25:32):

You know, I better go start poking around and see what’s going on with it. So also the BitBox uses a secure element very similar to what the ColdCard did. So now uses an 80 ECC, six Oh eight versus a ColdCard. Originally used a five. They did upgrade to the six also. But so I thought I’d try to find the same type of vulnerability that I found in the ColdCard, which in the ColdCard, what I found is some of the information that was being exchanged between the ColdCard and the secure element wasn’t being authenticated.

Lazy Ninja (00:26:12):

And so what does that mean? It means that the, the MCU was just trusting some of the information it received from the ColdCard and in the case or from the secure element on the old guard. And in the case of the ColdCard, that was a 10 pin attempt counter.

New Speaker (00:26:30):

So the ColdCard rights an update, it says, Hey, a secure element increments, a pin attempt counter. And then it it says, okay, that was a failed attempt. And so what I was able to do on the ColdCard was they didn’t actually confirm the right. So I was able to actually block the right command and it just wouldn’t increment the counter. And there’s a co and the thing is too is you can also read back the counter, but if you don’t read it back in this complex way, that command can be spoofed as well.

Lazy Ninja (00:27:15):

So I could you, can you try to increment the counter and then I can just, you know, return the, when you read it back, I can return the original value of the counter and then they wouldn’t know a penitence it happened because they weren’t able to incremented.

New Speaker (00:27:34):

And so they ultimately were able to fix that by just authenticating that. The right happened in a strong way using some cryptography. And so I was looking for something very similar in the BitBox cause some of the commands to the chip are just plain text command will play an cryptographically verified commands. And so I thought I would be, and it’s really with that chip, it’s really easy to forget and do something like that. So I was looking for the same thing. So when I, when I pulled up the code and I started looking through it it actually all looked really good.

Lazy Ninja (00:28:12):

Like a, they were doing things rights, you know, it was very professionally done. And so I started getting disappointed. I’m like, Oh darn it, I low hanging fruit isn’t there? But I kept focusing around the pin entry and when I actually noticed this a relatively subtle thing, but it sort of stood out to me, which was the logic for the pin entry.

New Speaker (00:28:35):

So when you get your box, you plug it in, it powers up and it says, Hey enter, actually it’s a password on the BitBox it says, Hey enter your password. And so one of the things they do in the code is they say it just like that. They say, okay, Hey enter your password, the user interest or password clicks. Okay. And then the BitBox uses that password and it checks with the secure element to try to verify if that password a was correct and if that password was not correct, get increments, a failed attempt counter. And if the password was correct, it actually decrypts the seed that is stored in the BitBox MCU.

Lazy Ninja (00:29:26):

So actually, and what’s interesting is in just that little bit of logic I just gave you right there, you can actually parse out what the attack is. If you’re thinking about possible side channel attacks in microcontroller [inaudible] what a side channel is. And a microcontroller is just an alternative way outside of the normal function of a device that a person can extract information from the system.

New Speaker (00:30:02):

And it sounds really sort of vague, but it’s, it’s actually quite easy. So one of the important side channels and embedded devices are all devices. Is there power consumption? So how much power is the device consuming at any point? And what you find is every time the device does something, you know, different numbers of transistors within the device turn on. Like literally for every instruction in the code that runs, it can nearly uniquely be identified if you have enough precision on a power measurement in real time. [inaudible].

Lazy Ninja (00:30:43):

So what I was able to do, and this didn’t even require that much precision, but so what I was able to do is, because I knew I could sort of see what the chip was doing by just monitoring the power consumption, I noticed that the pin is tested before they Mark it as failed.

New Speaker (00:31:06):

So when when the pen is successful, it does this a S decryption and it is actually very easy to see the difference in the power consumption for a trace of power trace where it does a S encryption and where it doesn’t do it. And if, when you look at the power consumption, you’ll see, I mean, everything looks absolutely identical without looking at an instruction by instruction level. Just looking at it on a more of a macro scale, you can see exactly what the chip is doing. And so on the BitBox, I’m able to determine that, Hey, the BitBox tested my password right here in the code.

Lazy Ninja (00:31:52):

And then if that was right, it should have done an AEs decryption right here, which looks like this, which draws this amount of power. But I can see that it didn’t do that. And so it draws us different amount of power. And then so the final step is to reset the chip before it increments account.

New Speaker (00:32:10):

So I can see if the chip tested the password as valid or invalid before the counter is incremented. And then you just reset the system. And this allows you to just like the, a hold card test, an unlimited number of pins because the device doesn’t actually track areas where you prevent it from tracking each attempt.

Vlad Costea (00:32:40):

Okay. So given your experience with hardware wallets and your understanding of security, if you are a newbie right now and you’re just starting out, which hardware wallet would you purchase?

Lazy Ninja (00:32:56):

Oh, that’s a good one right off the bat at. So I think it’s best to evaluate hardware wallets on a couple of things. So the wallet being popular is actually a very good indicator to somebody that’s not a security person, that the wallet has a better level of security.

New Speaker (00:33:19):

I’m also a wallet that has been around for a long time. Also is a good indication that the security level is higher. But Oh yeah. And also wallets that have good bug bounty programs that are well advertised and good payouts as well. Meaning they attract a lot of security researchers to investigate because they’re paying a lot of money. So it’s worth everybody’s time to try to find something. So that’s sort of, I would say, a general criteria. So I would highly advise against people buying a hardware wallets that are not, that are new, at least for a while.

Lazy Ninja (00:34:15):

And then also hardware wallets that you haven’t heard of or that not a lot of people have heard of. And those are probably the important criteria. And then once you have it sort of narrowed down to, you know, the top, you know, so you right here in, you know, in your article, lad, you, you listed, and then this podcast series, you know, you, you mentioned, you know, basically the five top wallets that I’m aware of and that I’m interested in. And I think that’s definitely a good place for anyone to start.

New Speaker (00:34:47):

Mmm. personally, I actually use a, a Trezor a model T I had actually just upgraded from my Trezor one to that and now it’s sort of funny, people will be like, well, you know, that doesn’t have the secure element that you like so much and stuff like that.

Lazy Ninja (00:35:10):

And it is actually a security negative to that device to not have a secure element. And there are a number of attacks that are possible because of that. But in my case I’m valuing the screen size and ease of use from that perspective as being more important then the secure element because in general, I don’t actually take my hardware out of my house and I actually only, I have a, I don’t actually store my funds on the hardware wallet most of the time. Usually everything’s in cold storage and the hardware wallet is just sort of storing intermediate levels of funds. So in my case, yeah, the Trezor model T was the best one for me.

Vlad Costea (00:36:00):

I think my next episode is going to be with SLAs of Trezor and slush bull. So I’m going to let him know that I did interview at a hardware wallet hacker and he said, you know, maybe that it doesn’t have a secure element, but if I were to choose just one hardware wallet, it would be the Trezor model T

Lazy Ninja (00:36:24):

That no, that doesn’t give them an excuse not to add the secure element. I think that should be a design path for them. But but yeah, no that was sort of my logic for valuing my choice there.

Vlad Costea (00:36:34):

I think sometimes the argument against the secure element is that not all the code in it is open source, which means that there needs to be some kind of trust that you put into the manufacturer. Right?

Lazy Ninja (00:36:50):

Yeah. And this is, this is another good line of conversation cause people, there’s sort of, there’s different types of secure elements. So the the one used in the box and the ColdCard, like I said, is that ATCC 508 or 608, I’m from microchip.

New Speaker (00:37:11):

And that device is a fixed function device. So meaning the, ultimately there is a processor in there running code, but that code is programmed by the manufacturer and the wallet manufacturer, the chip manufacturer that is, and the wallet manufacturer has no ability to modify that code. They can just sort of put values in and perform sort of general operations

Vlad Costea (00:37:39):

[Inaudible]

Lazy Ninja (00:37:39):

However, the ledger has a slightly different approach where, you know, I, I, their secure element is a secure MCU. So it’s actually a cortex M zero processor if anybody knows what that is, that has been hardened against lots of types of physical attacks.

New Speaker (00:38:02):

And so what that means is ledger has the ability to write code to do arbitrary things on that device. Mmm. So there’s sort of this confusion between the different types of devices and then also what it means in all in all situations. So at any time a chip manufacturer can insert back doors into any device.

New Speaker (00:38:29):

So some people they, Oh, well the, you know, the secure element, you know, it could have a backdoor in there. I don’t, don’t know what it’s doing. Well, the chip manufacturer could put a back door in the general purpose MCU you’re using as well. You know that anything can be done in that Silicon because it’s just not something that’s, that’s visible to you.

Lazy Ninja (00:38:52):

So it, it’s, it’s not so, you know, it’s, it’s sort of a not the right argument when you argue it that the chip manufacturer could have put a back door on because they can put a back door on anything if they want you. So the argument is more, you know, in the case of ledger, you know, there’s sort of two trusted parties cause the chip manufacturer has stuff they’re doing in that ship that is more secret and also ledger has code running on that secure element that is based on the rules by the chip manufacturer is required to be non-disclosed their code that they’re putting on there.

New Speaker (00:39:38):

So this creates a vulnerability where ledger could have done something. Now ledger is actually a very good company and to do a ton of research and they’re not doing that, but it’s very easy for them to potentially have missed something because less people are able to review what’s going on inside that secure element. But I, it was that clear plan. I, I guess I wanna make sure I’m making this clear. Is there sort of two different styles and, and yeah, it’s not yeah. Is that clear?

Vlad Costea (00:40:16):

I think that was pretty concise and you’ve made the point why sometimes using secure elements relies on a third party and sometimes it’s the manufacturer of the chip and other times it’s just the company which tries to arbitrarily inject some kind of code that may be benevolent and may strengthen the security, but at the same time you can never be sure because there is no easy way to tech.

Lazy Ninja (00:40:47):

Yup. Yeah. There you go. That’s really it. Yeah, you can’t, you can’t check. But, and then one also, one more point about the, the ledger approach is having a secure MCU also gives you some more flexibility. So here’s sort of another angle on this whole thing. So a secure chips like I said, they ultimately they’re running, you know, the, you know, the secure chips in a BitBox and the cold are ultimately running, you know, shall we say, hard-coded manufacturer code. And, and then on the ledger there’s some hard coded manufacturer code, but then there’s also code by ledger.

New Speaker (00:41:27):

So if there’s some error in the code on the Ledger’s secure element ledger can actually release a software update and fix the issue where if there’s some sort of manufacturer error on like a secure element of Nicole card BitBox there’s no ability for cold Carter BitBox to bandaid. The problem they have, they’re solely reliant on, well, I don’t know. But in a lot of cases they’re solely reliant on the manufacturer to provide the fence. So there there’s, there’s pluses and minuses and it really, if ledger could somehow, you know, open up their code at some point through some mechanism, you know, that that actually can be a superior solution as far as a secure security goes.

Vlad Costea (00:42:30):

Interesting. And as far as I know right now, ledger are the market leaders and they sell the most units because they also seem to have the best records in terms of hurricane, meaning that they didn’t have many and they did not seem to be as severe, even though I think the people from wallet dot hack, I think that’s the name of their website and organization.

New Speaker (00:43:00):

Oh yeah. That one. Yup. They try to emphasize on the fact that they installed a custom firmware on the ledger, nano S and they were able to play a game of snake. And I think that was a way for them to say, if we were able to do this as a modification of the firmware, just think about all the software we could inject to steal people’s coins. Ledger was that they did not interact or hack to secure element, which is where supposedly or most likely the private keys are stored because they did not sweep any funds.

Lazy Ninja (00:43:42):

Yeah, that’s correct. That’s correct. However, the attack from Walt fail can be extended to steal people’s money, you know, relatively easily. So it is a significant attack. And it’s actually, it’s, it’s a tricky one to fix too from the ledger perspective, but let’s talk about that for a second. So being able to arbitrarily install firmware onto the, the general purpose microcontroller in the ledger.

New Speaker (00:44:11):

So not the secure amount, but the general purpose [inaudible] is actually very critical because the general purpose element has access to the display and Oh, and make sure I’m right about this. I believe it has access to display and buttons, but I guess I’m not 100% on button, but for sure it has to the display. And it’s, and it’s very critical because if I can, if I, if you’re, again, if I come to a party at your house, glad I can, I can walk over to your ledger that you have sitting out and I can replace the firmware on it with malicious, firmer.

Lazy Ninja (00:44:48):

And now my malicious firmware won’t run snake. I lit malicious firmware will look exactly like the factory firmware. And what’s going to happen is when you enter your pin onto the ledger, I will just, I will now know your pen, right? So, no. So let me put a couple of caveats in here. I haven’t researched closely into the ledger and I don’t have one, so I may be missing a couple extra types of checks they do there.

New Speaker (00:45:18):

So double check the details of what I’m saying here, but in general, you enter a pin. I don’t have to know the pin, I just recorded it in my software and now I can access the secure element and [inaudible] and I can also display wrong information on the screen. So you say, Hey, I want to transfer money here or here, you know, you enter your pin, I show the address you said on the screen, but I actually go off to the secure element. Well now maybe that’s not quite right. Well anyway, I could, I could, if nothing else I could I could I could steal, steal your pen and then at a later point, you know, gain access to your device and then actually have your pen and probably a few other ones there. I don’t want to get too far down the road. I just haven’t looked at that closely enough. I’ll make sure they’re going to disparage them when they’re actually over prevention for one of these mechanisms.

Vlad Costea (00:46:15):

Okay. I spoke to trace Mayer a couple of weeks ago and he declared himself a big critic and totally not a fan of dedicated Bitcoin devices and it was mostly because he’s very concerned with privacy and he believes that when you order something from Amazon, it’s going to be on a permanent record that can be used against you.

New Speaker (00:46:39):

And when you purchase from, for example, the website of Trezor, you’re going to be registered as a customer. And also when you access the interfaces of these hardware wallets, I think their wallets are in SPV mode. So you connect to somebody else’s full node in order to make your transactions. So you’re trusting the company to be accountable and fair when it comes to software.

New Speaker (00:47:10):

I’m not aware at this point of any hardware wallet, which has native software to allow you to connect your full node as a user. But anyway, wait, I think home only BitBox, so too does that. But moving on, the point of my argument is that trace Mayer said that you should be buying general purpose hardware and use it for storing keys and it’s better to just get an old laptop, sweep it and never connected to the internet and have your private keys stored on it than to buy a Bitcoin device that is going to associate you with Bitcoin and from whoever you buy it, they’re going to know that you’re into this.

Lazy Ninja (00:47:59):

Yeah, I think it, it depends. So I’ll say in general, I don’t agree with that. For most people. There are people, you know, if you’re in a country with a government that is authoritarian or hostile to Bitcoin, the risk of penalty or seizure or harm to you from letting anyone, you know, you potentially have some Bitcoin is probably high enough that using a, a, a, a custom or a, now let’s say word, a software mechanism to store your funds that where you don’t disclose or docks yourself to the government [inaudible] could be valuable.

New Speaker (00:48:53):

But I think for most people, the, the risks of losing your money or having your money stolen from it’s stolen from you Bay by a private party probably outweigh the risks of retaliation by a government. But I think that probably has to be evaluated in each case. It would be my sort of thinking on that.

Vlad Costea (00:49:26):

Yeah. The idea is that if you’re going to use a hardware wallet, it’s possibly better for privacy reasons to just get a general purpose device or if you’re technically minded, you can just download the schematics from the Trezor get hub or I think even called card has released oldest specification so that you can build your own from parts.

Lazy Ninja (00:49:55):

Yeah. Yep. For sure. For sure. When you have the skill set to do that, yes, you absolutely can can get a a hardware wallet implemented yourself for sure. And I think, you know, Justin, Dustin moon, right? He has a, is a university that teaches you how to design your own hardware wallet and, and yeah, I think for certain people that that can be a valuable way to do it. But most people like I said, I think, I think the risk of loss through theft and mistakes probably outweigh loss from doxing yourself to your government.

Vlad Costea (00:50:35):

It’s not just about the government. Sometimes it’s about third parties that may be interested in your transaction data and knowing how much Bitcoin you own and some very smart criminals who will, I think also trace Mayer told me in that interview that if a hacker is able to extract all the information from the customer database of Trezor or ledger, they will also be able to see addresses that they generated and transactions that they made unless they manage to connect the device to full node. And that helps them identify holders who have most Bitcoins. And from there they just hunt specifically the individual.

Lazy Ninja (00:51:22):

Yeah. So, so for that angle, I definitely, so my statement I guess is focused on building your own hardware, but I, I definitely agree that running your own node and connecting your device to your own node is important for a numerous other reasons. So, yeah, I 100% agree that running, you know, not connecting to Trezor or lenders backend server is, you know, was very important. And I guess for new new people it’s sort of hard to get that set up right away. So I, I can definitely understand people have problems there, but I think that’s different though than the the problem of buying hardware versus building your own hardware or just using a computer and software to do it.

Vlad Costea (00:52:13):

What do you think about software like armory or Electrum or wasabi, which is very good as an open source then I guess it received a lot of your review and it’s for free. You can just download it on a computer, you can run it on a computer that’s not connected to the internet and some people may regard even Bitcoin core as a good replacement that is much more secure, done other configurations possibly not as secure as a hardware wallet, but it’s still some kind of security. Right?

Lazy Ninja (00:52:56):

Yeah, for sure. I actually, well, so it’s, it’s sort of tricky. You [inaudible] in general, things on your PC are going to be less secure than things on your phone. [inaudible] So having a wall and you know, I’m not a complete expert in this area, but having a wallet on your phone I say is probably generally safer then your PC in most cases.

New Speaker (00:53:32):

However, I, you know, I definitely, so I originally had, you know, first gotten Bitcoin. I did have an armory wallet. But you know, since then I’ve, I’ve been using all Electrum and, and wasabi and I generally, I don’t just store, like when I’m using wasabi on my PC, I don’t just store money there. It’s just sort of for transactional use to mix coins and then move them somewhere else, whether that be cold storage or warm storage and in a hardware wallet.

New Speaker (00:54:09):

But yeah, I think yeah, I, I think in general I would prefer, you know, something like samurai on your phone for larger amounts of money than I would, I would store on my PC, my general purpose PC. Now if you have a PC that’s are not connected, the internet is just your Bitcoin PC that probably could be better perhaps than a phone if it’s something we’re very careful with. But probably for most normal users, the phone is probably the most secure environment. If you can get a trusted wallet,

Vlad Costea (00:54:44):

I guess it depends on the phone because I think Androids have a lot of malware diet you can get just by downloading some kind of obscure application or even by installing third party software while connecting your phone to the computer with a USB cable or whereas I think Apple has better security in this regards.

New Speaker (00:55:07):

They might limit some teachers like I don’t think there is any wallet wait, there is one just green address or Blockstream green. It’s the only one which has door on iOS. They figured out some way to do it, but an iOS is very hard to implement something like Tor. It’s very hard to do lots of stuff that on Android is just open and easy.

Lazy Ninja (00:55:34):

Yeah. And I don’t want to get too far out of my expertise, but I think a lot of the issues on Android are when you install applications that are not in the Google play store or you know when you, when you go outside of that ecosystem and it’s a little bit easier to do that than on an Apple device.

New Speaker (00:55:55):

I think that’s where you get in trouble. I think as long as you stay within sort of the Google play store ecosystem, I think most of the, the things those lap locations can do to your phone don’t ultimately allow them to, to, to steal your to steal your funds. Cause it’s generally those wall, even if they get access to storage as long as you’ve a decent passphrase for your wall encryption, that should be encrypted. So the only time when they would really have access is there somehow it’s mobility for them to attack your wallet. Well it’s running and get into that sort of execution sandbox. But yeah, I don’t want to get too far out of what I know. I’m probably just, people find, make fun of me cause I don’t know what I’m talking about here on the phone side,

Vlad Costea (00:56:50):

One of the questions that I’ve asked every guest that I’ve had and the season was about why should anyone use a hardware wallet? Why not just resort to a paper wallet or a brain wallet or try some other way of storing your keys.

New Speaker (00:57:08):

And believe me, I’ve heard about people just holding their seed phrase and a never note document on their email, on their notes application and that’s just insane. You should not do that. Or even sometimes they take a picture and keep it in their phone or some kind of screenshot one day create the wallet on the mobile wallet. They just take a screenshot of the words and say, Oh this is great. I can just copy this image and that’s it. I don’t have to grab a piece of paper and write down. And this isn’t just about the security of your Bitcoins. This is about data security in general.

New Speaker (00:57:50):

Because when I look at my nephews, for example, they’re about 10 years old and they have no understanding of security and they tend to just keep hold their data on their tablets and laptops and things. That is just their data and they even upload to the cloud. They synchronize their devices without thinking about privacy and consequences and that can be easily abused and we have no idea what’s going to happen with this data or at any points of our lives or after our lives.

Lazy Ninja (00:58:28):

Yeah, I think it’s, it’s a really hard lesson to just tell somebody cause people don’t realize how vulnerable and they are with different pieces of data that they share, whether it’s Bitcoin keys or things you upload online and it really tight takes sort of being burned on the stove as people say before you learn, you shouldn’t touch the stove. So it’s, it’s, it’s, yeah, it’s hard to just say you shouldn’t do this enough to somebody until it’s happened.

Vlad Costea (00:59:00):

But

Lazy Ninja (00:59:02):

As far as why should somebody use a hardware wallet for Bitcoin? It’s actually for me, I would say it’s sort of a split use case. So, you know, I, you know, hold in cold storage. So every, everything I hold is cold storage stamped on a piece of metal and protected that way. So completely non-electronic. But and then I have all my UTX owes divided up, you know, so it’s not all sitting in one UTX.

New Speaker (00:59:34):

So, and then occasionally if I need to pull money from there for some reason or another, I will sort of use a hardware wallet at that point to interact with those funds. On a temporary basis. I just interact with them transactionally just to get them from that address and then perhaps put them into, you know, a phone wallet or another hardware wallet. That’s my quote unquote warm wallet address set. [inaudible]

Lazy Ninja (01:00:07):

But if you plan on using your Bitcoin it can’t be in cold storage, can’t be on a piece of paper. You ultimately at some point have to use it well, depending on how long, what your timescales are at some point, some point everybody has to use it. But so the purpose of the hardware wallet is for in cases where you’re going to use your Bitcoin to do something cause putting, putting that money on your phone or on your PC once it gets above a certain threshold becomes not safe.

New Speaker (01:00:42):

So for me, hardware wallets are for intermediate amounts of money, so not your bulk savings but not your cash, but sort of intermediate mounts. So if you are doing, you know, if you’re trading on an exchange perhaps and you need to move money in and out of that exchange relatively frequently that’s a good chunk of change.

Lazy Ninja (01:01:06):

But not everything. You know, it’s probably really good to have that on a hardware wallet. But I definitely recommend you know, cold storage however you do gotta be, you gotta be careful with cold storage too, that that you do that properly and don’t lose it.

New Speaker (01:01:23):

Um by similarly to a hardware wallet, I guess, or any backup. I actually, when I converted to cold storage, I had a really hard time doing that factory reset on a, on my Trezor to erase it. I was just never sure. And then I had to try to reenter the seed again just to double check. I didn’t mess anything up when I was transferring it to the the cold storage. But yeah,

Vlad Costea (01:01:52):

Actually that’s something which is oftentimes overlooked as you don’t really think about getting a backup and trying your seed phrase to see if you wrote it down correctly.

Lazy Ninja (01:02:07):

Yeah. And the other thing that’s really important too, sorry if I interrupt your train of thought there is don’t just try it on like, so this is actually a dangerous thing but a safe thing. So like when I checked my backup I don’t just check it on my Trezor, I also check it on another device and just to make sure that it’s generating the same, a key chain between the devices.

New Speaker (01:02:37):

Um so it’s, you can get in situations where if you just always Chuck on, on one device then you end up with some derivation pass. It’s not standard or some, you know, some sort of issue like that. And all of a sudden you’re, you potentially could find your money again, but your money can become lost for a little while and it’s really scary.

Vlad Costea (01:03:01):

Oh, it is carry all the time. I actually, I don’t think even after a year or so you could, I don’t think you can make Bitcoin transactions without being a bit paranoid. I will checking and feeling how your heart beats faster and you’re not sir, if your setup is secure, if somebody can see what you’re doing and you’re basically in your head, you’re reviewing the whole process and I think that’s a part of giving up hard money. I imagine that our ancestors, when they were trading amounts of gold, they were in the middle of a similar process. Yeah.

Lazy Ninja (01:03:44):

You brought up some I when I’m, when I’m doing sort of cash operations like or like small, you know, I’m sending $50 here or $100 here, you know, off my, off my phone to buy something or whatever. I don’t think about it for a second. Not nervous at all. Totally. Totally fine. Not, that doesn’t cause me any worries, but yeah, when I move my cold storage funds, if I want to take a chunk out of there and remix it or do something with that, I am absolutely terrified. Terrified. It’s like the most stressful moments of my life.

Lazy Ninja (01:04:23):

Sort of. When you have a deeper look at some of these things, you realize how much can go wrong. Like there, there can be all sorts of, you know when, when your hardware wallet signs your transaction or generates the outputs. There can be several things.

New Speaker (01:04:39):

Ron, just for some, you know, maybe there is some you know, some, some sort of just glitch on your device for some random reason can potentially corrupt an output or something like that. Then you can send your coins into nowhere, you know, I mean, you can review code and see for double checking and things like that, but that’s probably the reason why I have all my money divided up into a number of UTX. Oh, so something weird like that happened. It’s not just all gone, you know, it’s just the tone.

Vlad Costea (01:05:12):

Yeah. That’s very good advice. What about multisig? Because we had this conversation before

Vlad Costea (01:05:18):

We started recording and you said that it’s kind of overrated and its importance is overstated in regards to the risk.

Lazy Ninja (01:05:27):

That’s a symbol. Yeah. I think, I think multisig for most users ads more complexity, then it, then it mitigates risk of other failures. So if you look at how do people lose coins, how do people lose money? So you know, let’s say, so an argument for multisig and a hardware wallet would be [inaudible]. And this, this is actually potentially a good one, right?

New Speaker (01:06:01):

Let’s say the Trezor so they use a microcontroller from SD and STM 32, let’s say it’s discovered that S T is incorrectly did an incorrect implementation of the random number generator on the device such that based on factory information, the way it’s being seated people can determine those random numbers. So maybe that’s a little too much engineering Babel, but what that would mean would be that it could be potentially, there could be a potential for some internal, maybe S T employee with knowledge of some configurations on the random number generator.

Lazy Ninja (01:06:48):

And the way it’s seated that they could just determine deterministically random numbers that have been generated by all their devices, which would result in a remote person being able to just steal your Bitcoin right off the blockchain without ever having talked to your car without installing malware on your computer, without touching your device or anything. They can just steal your money. Because at random number generator is generating private keys.

New Speaker (01:07:19):

No, there’s mitigations in there, right? So devices have other internal information they combined with the random number generator and there’s a whole bunch of other things happening that make that not super likely, but you know, it’s sort of an angle. So to mitigate some catastrophic implementation thing at the hardware level like that, you can use two devices. So let’s say the BitBox, so the BitBox uses a chip from a different manufacturer and it would be highly unlikely that both those would have the same issue.

Lazy Ninja (01:07:54):

So if you use them in a multisig, you get rid of that issue where something like that, it could be wrong. So, okay. So we’ve got rid of some rare potential issue, but now we’ve introduced something that is, it’s not new, but it’s, it’s, it’s sort of uncommon, which is multisig. So multisig is sort of a, a more infrequent use case. And so what does that mean?

New Speaker (01:08:29):

Based on what I’ve said before? Well, it’s, it’s just not tested as well. And additionally, depending on the multisig you do now, you have to keep track of more keys. So ultimately you don’t just want these in hardware wallets, you want backups and people talk about, well, we keep one key here and one key there. Having each of those locations [inaudible] you know, you how have to protect each of those locations. Now there can be different multisig like two of two or two of three. You can do things there, but it starts getting really complex. And the fact also that it’s new is the, the, the, the format of the script that’s generating the multisig is also hasn’t really been standardized. So if you don’t keep track of how that was generated, you could be unable to claim your coins. Just because you can’t say I identify how to claim them anymore. So there’s,

Vlad Costea (01:09:33):

Mmm,

Lazy Ninja (01:09:34):

There’s a lot, there’s lots of complexities introduced my multisig and for the problem, at least at this time for the problem at fixes, I don’t, I don’t think they’re, they’re justified in most cases.

Vlad Costea (01:09:46):

Right. So let’s think about some of the new hardware wallet devices. Is there any particular one that caught your attention and made you think that it might get huge in the future? Or are you still conservative and think it’s still a good idea to just go for the most tested one? The one which follows this so-called Lindy effect?

Lazy Ninja (01:10:11):

Yeah, I think I think the Lindy effect as you referenced there is probably the right way to go. I think right now we’re also in this stage of [inaudible] experimentation, right? So there’s, there’s lots of things changing and different designs being tried and, and it’s hard to say if a new vendor will come on the market with some better tradeoffs between usability and form factor and stuff that will really, really sort of capture everything.

New Speaker (01:10:44):

But it’s also if a, an older player sees a new guy comes on the, on the field with a [inaudible], a newer form factor that sort of is capturing the market, they can always just copy that and then rely on their previously generated a network effect to then capitalize on that investment by the new player. So I think, I think the, I think the older guys in the, in the field, they’re probably going to end up winning out. But at least at this point in the evolution, I mean, ultimately companies get so big they can’t, they can’t be agile and change. But at this point, I think some of the legacy players in hardware wallets are going to be the ones that are, you’re going to be around in another 10 or 15 years.

Vlad Costea (01:11:32):

So it’s always about the first mover advantage.

Lazy Ninja (01:11:36):

Yeah. Especially I’m being a little bit agile as a first mover, right? Some first movers run out of money or get hit with a hit with something at the wrong time and get stomped out. But if they can make it through a few downturns and still have money to continue to invest in their products, they’re probably, they’re probably gonna be around a long time.

Vlad Costea (01:11:58):

W after I finished writing that article for Bitcoin magazine, I got a lot of requests from other companies that just wanted me to review their hugger wallets and felt like they were left out. I think one of them was coolwallet and one of them, what’s their name? Elipal.

New Speaker (01:12:20):

I’m not sure how you pronounce it, but it’s from China that they produce devices that look like tablets and they say they are just as Eric gap does the ColdCard and they wanted to send me one to review it and I told them, okay, you’re going to send me a device but just take into account the fact that I might not like it and I may just, it might be bad press for you if you send it to me and I just slam it and they said anyway, we think you should have it and you should test it.

New Speaker (01:12:57):

And is it a good idea to give the benefit of the doubt to this manufacturers or should we just assume that they forked some kind of code parts from the Trezor because it’s generally available and it’s probably safe to assume that every hardware wallet is more or less inspired and derives from the Trezor and maybe has taken some twos from other manufacturers and released a new product.

Lazy Ninja (01:13:26):

Well, you know what, I [inaudible] I think we’re, so, I don’t know if this is totally consistent with what I said before. I just feel this way though. I think

Vlad Costea (01:13:47):

You muted yourself, you said, I think, and then you stop still there. They’re bled. Yeah. Your backup.

Lazy Ninja (01:13:59):

Sorry, my phone cut out there. So I think we’re at a point in the evolution of the Bitcoin ecosystem and these products

Lazy Ninja (01:14:11):

That it is, it is worthwhile giving the benefit of the doubt of people because there’s just this rapid innovation where, where people are just changed tweaking this or tweaking that. Like even between the Trezor and the Kiki. I’ll have to concede.

New Speaker (01:14:28):

I didn’t, I haven’t used a Kiki, but they just wanted to make a usability trade off in, you know, display size and things like that. And I think that’s really a legit thing to experiment with. I mean it’s, it’s, there are lots of attacks where the user is attacked because not enough information is displayed or the information isn’t displayed in a way that’s, that’s intelligible or usable. So I think experimentation with displays and form factors and things like that is a good thing even if it is just the Trezor clone.

New Speaker (01:15:06):

But I still fall back on when I said before though, I even though those devices, those devices or strategies, maybe the right strategy, I still think the legacy guys end up just copying those strategies and if they’re determined to be successful and then and then move forward with that. But I think it’s interesting to evaluate all the different strategies people are people are using. Just expose, put that out there for, for everybody to know.

Vlad Costea (01:15:33):

Yeah. Maybe it’s a good idea to give the benefit of the doubt and possibly I will invite some of them to talk and present their features. And one of the most popular questions that I ask whenever I have hardware wallet representatives is, can you say something nice about your competition? Something that you don’t like about them?

New Speaker (01:15:57):

So far it was mostly positive and they had struggles finding something negative and praise their competition and said, Oh, they are doing such a great job, but you know, we have this one extra feature which makes us where fee of your consideration. Because at the end of the day, it’s just a matter of choosing which features you want to have out of the box. And if you want to just use the Electrum and connect your full node, you can just buy the cheapest device. Right?

Lazy Ninja (01:16:33):

Right. Yup.

Vlad Costea (01:16:36):

Does it make much of a difference if you buy, keep key for $30 and connected to the Electrum and your full node and never go for the intended manufactor path? [inaudible] Mmm.

Lazy Ninja (01:16:57):

Well, yeah. No, I think that’s, that’s the right, you know, in my, in my opinion, that would be the right way to use a Kiki. But also, well here, let me split this. So I do think one of the main use cases of a hardware wallet is potentially for trading on exchanges.

New Speaker (01:17:18):

So, you know, using, you know, shapeshift with your keepkey actually, you know, you’re already giving them your information by trading on their platform. So [inaudible] maybe it’s less important to just keep your keep key tied to your Electrum personal server or Electrum and your own node. But yeah, I don’t, I, I guess I guess I, I don’t know. I don’t want to go on that.

Vlad Costea (01:17:54):

I was about to ask you to tell the difference between cold storage and hardware wallet because there seems to be a lot of confusion. And you mentioned just before this, there one of the use cases of a hardware role, it is to connect to exchanges and trade.

Lazy Ninja (01:18:10):

Yeah. So I think for me, no, maybe this differs for other people is I, I think, you know, anytime you have a large amount of money that is truly your savings, that should be in cold storage and cold storage means not an electronic device. It, paper is fine. You can write things on a piece of paper put it in a safety deposit box. I, I went in, I stamped my seed phrases into a, a piece of titanium and one of the things I looked at there too was sort of a usability type of thing.

New Speaker (01:18:49):

Like I, I got a [inaudible] hi Kate. So I used a crypto tag and so one of the things I liked about them was it was just very clear, like I didn’t as far as like, if somebody my heirs in the future see this thing, there’s lots of information on there to sort of tell you what’s going on and it’s, you don’t have, there’s no chance for ambiguity and some of the information on there.

Lazy Ninja (01:19:20):

So that was one of the things I liked about that. And then so now it’s a preserved for generations such that, you know, it can survive all sorts of of issues. And so that’s where the bulk of my savings goes. And then intermediate mounts of money are what I use hardware wallets for. So I’ll pull the cold storage, I would have it’s storage and enter that seed into a hardware wallet and then use that to transact a whatever amount of money I want to move and then put the cold storage back and cold storage and then erase the key from my, my hardware wallet and that, that’s sort of my use case, how I do stuff.

Vlad Costea (01:20:10):

Yeah, that’s an interesting setup that you have there. But how would you advise somebody to begin securing their own Bitcoins and embracing financial sovereignty? And by the way, should they go for a Bitcoin only hardware wallet? Like is the case with the Trezor, the box and the ColdCard.

Lazy Ninja (01:20:31):

So I like to support the Bitcoin only hardware wallets just because by being Bitcoin only, well, there’s some hybrids here, right? So a true Bitcoin only hardware wallet, like the ColdCard mean they don’t have to invest extra resources in supporting other stuff. And so it allows them to focus and spend more money and do it better. Just supporting one coin that they support.

New Speaker (01:21:10):

However, there are some Bitcoin Omani version, you know, like the BitBox has a Bitcoin only version of software and then another version that supports other coins. There’s less value in that. Personally, when I buy, when I buy this stuff, I always just buy Bitcoin only just to try to send signals to the manufacturers that what I’m interested in. But there’s a little value in that is in that the code complexity is potentially reduced. But there’s sort of, there’s a lot of trade offs there, right?

New Speaker (01:21:44):

Cause now you have two versions of code and if you don’t maintain those two versions of code correctly having two versions can ultimately sort of introduce errors. But so it’s a little tricky. So I do, I do buy Bitcoin only, but yeah, it’s, it’s best when it’s, there’s not an option. It is just Bitcoin. Bitcoin only and you know where they’re spending their money.

Speaker 9 (01:22:09):

Mmm.

Lazy Ninja (01:22:11):

Oh, so what should, okay, so a new person, what should they do? So what I tell my friends to do is actually I don’t tell them to buy hardware walls, but that’s probably not good for the hardware wallet manufacturers. I just tell them, I will let you use my hardware wallet cause I, I just use it ephemerally anyway, I just, you know, I just, I wipe it and then put other stuff on it. I’m like, create a seed, buy some Bitcoin, write in a piece of paper and then, and then wipe it out and then I’ll just go and just give it back to me.

New Speaker (01:22:43):

So that’s normally what I tell people to do. However, I did have friends that were really into trading and stuff, a little shit. Shit’s coin casino I’m going on. So they have hardware wallets and they’ve moved their money in and out of the exchange using that, I’ve sort of showed them what to do there.

Vlad Costea (01:23:03):

What do you think about the fact you can use a YubiKey, which is more of a general purpose device for storing data to also start your private keys? Is that a good idea to get one of these general purpose items that can also be used for email passwords and banking information and put it put in your private keys altogether? Or possibly just separate and have that only bit of information on the device?

Lazy Ninja (01:23:37):

Mmm, I’d have to look at exactly what the set up was, but in general I would say no. I think it’s protecting Bitcoin seeds and is really hard. And I think you need a company that is just focused on doing that, at least at this point. So I’d ha I had YubiKey I’d have to, I’d have to see exactly how they’re protecting things and what their interface is like.

New Speaker (01:24:09):

But like as in general, I think you just need an incredible amount of focus in order to secure Bitcoin correctly. And you know, like, you know, you’ve seen even all these companies that have security professionals, their only job is to protect Bitcoin. All of these devices still ultimately have vulnerabilities. And that’s not to disparage these companies at all. It’s just to demonstrate how hard it is to protect information. Especially when physical attacks are also part of the threat map.

Vlad Costea (01:24:49):

No, it’s always sensitive whenever it comes to data security. And I guess we can both agree that at some point Bitcoin will be huge. Maybe in our lifetime, hopefully it’s very hard money, possibly the hardest that we have. But at the same time, it’s just as hard to secure and we need to develop some kind of technologies and popular means to allow individual sovereignty or else we will have a situation where like in Germany, people can deposit their Bitcoins in traditional banks and that’s considered to be a safe way where you also have this type of guarantee that if they get hacked, they’re going to give you back the Bitcoins that you owned.

Lazy Ninja (01:25:48):

Yeah, it’s a, it’s sort of an interesting, I mean it’s, it was, it’s ultimately very similar to the down the reason for the downfall of gold as

Lazy Ninja (01:26:03):

As, as cash shall we say. Right. Because gold is very good. It’s very hard. You, you can’t fake gold, but it has some problems in that it’s hard to verify just a gold, Boolean payment. So like if I just give you a pile of gold, you don’t know the purity, you don’t know the weight, you have to weigh it, you have to check the purity.

Lazy Ninja (01:26:32):

And that is really cumbersome for a lot of commerce. So what the first step was, you need an authority to give you standard purities and weights. And that’s where governments got into the business of stamping their leaders face on a piece of gold and call it a coin and say,

New Speaker (01:26:51):

Hey, this is a standard weight and purity of gold. Well now the public has an easier way to transact cause they don’t have to worry about Wayne and checking gold, purity. But then once government controlled that part of the money, it just kept centralizing more and more until the governments held gold and like, well, you don’t need to carry around this heavy gold, you know, you called it in the bank and we’ll give you these these paper certificates ment that you can you can write, you can hand around to transfer your gold.

New Speaker (01:27:19):

And, and it escalated from there until the situation we have right now. So yeah, we don’t want [inaudible] Bitcoin to go down that same path. And I think there’s risk. It’s, it, it is easy to use Bitcoin. There’s just, yeah, I don’t know. There, there’s some risk. So yeah, ultimately I do believe that, okay. Using it, you know, is going to be easier than it was to use gold. And so I’m hoping that everything doesn’t centralize or at least a much lower amount of Bitcoin centralizes into places like exchanges and Bitcoin banks. So we don’t end up back in the same situation we’re in now and 200 years.

Vlad Costea (01:28:15):

Right. Right. Now when you get into Bitcoin, your first instinct is to download the Coinbase app or get on the website. I, I don’t think there is a more popular option and that’s how everybody begins and unless you start to understand the purpose, why it was created and what it’s supposed to do, you’ll just look at the hacking record of Coinbase and see that it’s pretty well-performing. I don’t think there is any major attack on it. It didn’t end up like Mt. Gox the people in there are very competent and they take it very seriously. So if you just think about speculation and it’s a speculative investment that you right now and possibly

Vlad Costea (01:29:02):

Sell later and you have no problem with a company knowing all of your transactions, maybe that it makes sense to stand Coinbase. But if you’re trying to hedge against government money and you think that ultimately Fiat will fail and you won your funds to be suffering and you want to be able to move it whenever you want, however you want, then it makes a lot of sense to hold it on a hardware wallet or any other form of cold storage and just hoard it it for 10 plus years and see what happens. Not financial advice by the way, but that’s right. But some of us do and that’s what our expectations are. Yeah.

Lazy Ninja (01:29:49):

Yeah. When I, when I got into that quiet, I did it, I did exit. You literally, and we didn’t talk about this at the time. I don’t think I did. It was like exactly what I did is what you listed I, well first of all, I, I like, I don’t know what the song, this crazy thing called Bitcoin. What is this? And I was immediately drawn to it. So I just sort of anti-government, but just libertarian mindset. I just didn’t want government controlling my money or anything. So I was instantly interested in this and I had sort of technical background. So I read the white paper, recognize this was pretty cool. This was right at the end of 2013. And yeah, the first time, first thing I did and like, well how do I get some of this to play with it? And I’m like, Oh, okay, if I Googled this thing and I found Coinbase.

Lazy Ninja (01:30:33):

So I think, I think Coinbase was like just open, I think just started. But so I got my Coinbase account and I’m like, well this is a really small one. I don’t know if I trust these guys. What’s the biggest, let me see if I can find the biggest X most popular exchange. Oh look, this exchange called Mt. GOC this thing is the biggest, most popular Bitcoin exchange.

New Speaker (01:30:53):

But I wasn’t oblivious. So like I just started recently cause I was really cautious at the time. So I started researching. I’m like, I don’t trust any of these places yet. And there’s all this stuff about people not being able to get their funds out and these delays. But then it looked like everybody ultimately was getting their money and this was just trial by fire. You know, people are like, well, I got to rebroadcast the transactions myself and I had no idea what’s going on.

New Speaker (01:31:17):

I’m like, I have no idea what that means or anything. And so ultimately I’m like, well, whatever. I’m just gonna we’ll, we’ll send, we’ll send my picture to Mount GOX and see what, see what happens. And sure enough. So I got my Coinbase account set up and then I got my Mt GOX account set up. And then a few days later, Mount Gox went bankrupt and then disappeared. So luckily it was before I put any money in. So, so I dodged a bullet on that one.

Vlad Costea (01:31:49):

[Inaudible] Yeah. And we should not forget what happened there and what bad security can lead to because as far as I know, Mt. Gox was starting to information about and

Vlad Costea (01:32:00):

SQL databases and files, which is insane. It’s very inconsiderate for people’s privacy and for their all days.

Lazy Ninja (01:32:14):

Yeah. I mean it’s the whole reason. Yeah, it’s, it’s, it’s terrible. Like I sort of, when I did it, I sort of felt that too. I’m like, I just don’t, I don’t want this weird company having access to my bank account and my ID, you know, I just, I was just so hesitant about it. I’d just like, you know, just felt really uncomfortable. But I’m like, Oh, they’re the biggest one though, so we’ll just do it. Turn it turned out.

Vlad Costea (01:32:36):

I wonder what it’s like nowadays to KYC to buy Nance when you first start. I didn’t do it. I never signed up to bananas. I think the only exchange on which I did sign up and KYC is bit STEM possibly. But just think about that. There is this company from China and they want you to give them all the information and I know it’s complicated with by NAS that they’re from China, but they have offices in Malta and they have all sorts of operations in various tax havens around the world and possibly does how they were able to operate.

New Speaker (01:33:18):

And do the kind of stuff that they did, whatever it took them to become one of the top exchanges and list all sorts of shit coins and never be legally liable for all the pumps and dumps that happen. Yeah and I think they reject by default us customers so you cannot get burned

Lazy Ninja (01:33:43):

Know up a us branch. Now I didn’t see if that had went through and was working or not. But

Vlad Costea (01:33:49):

Anyway it seems so nice and friendly when you sign up and you have these interfaces which look a lot like what you see in your banking experience but it’s a lot more frightening and yet you have to be aware that these exchanges, sometimes they get hacked in Durkee, YC databases just like it happened with finance and they extract pictures and user information and the treads and the exchanges and try to extort some bit conservative them and say unless you pay us this amount, we’re going to publish all of this user information on the internet and that’s going to be bad reputation for it and bad press.

New Speaker (01:34:33):

And I have no idea how by Nance and BitMax and got away with it because they, they both had similar attacks with BitMax. It was that one of the employees sent out an email where all of the email addresses of [inaudible] he CC’d. Yeah. It’s insane. And he got away with it and people still use these platforms. They trade

Vlad Costea (01:34:58):

And they’re going to argue, Oh, but they did not lose any funds. Yeah, they didn’t. But they talked to their privacy. Yes.

Lazy Ninja (01:35:06):

Yeah. People don’t, people don’t realize how like careful you have to be. It’s just crazy. Like you remember the the Ashley Madison data leak?

Vlad Costea (01:35:18):

Oh yeah.

Lazy Ninja (01:35:20):

I mean it was so I, so I may have inadvertently downloaded that database by accident and it, it was like really like, I’m like, I probably shouldn’t be doing this type of thing. I was finding people that I knew in there. Like I’m like, okay, I’m just going to not tell anybody I did this anymore.

New Speaker (01:35:46):

Cause I just worried if you start being too uncomfortable. Like I just can’t even, I can’t even talk about this. But it’s like, it’s just scary what people will, you know, how, how much you’re reliant on companies to protect your privacy? Well, not in that case it’s

Vlad Costea (01:36:05):

It’s sort of required to KYC yourself cause you’re trying to meet other people. But like with the banks and exchanges, it’s just, you know, it’s just ridiculous. The governments and trying to protect us and requiring all those rules ultimately caused us to lose

Lazy Ninja (01:36:20):

All our privacy by forcing companies to protect all this sensitive data. That is, it’s really just impossible to protect. I mean, even so, even the NSA, right? Their their hacking tools got leaked. It’s like, what’s that called? Does that happen? It’s like a supposed to be one most secure places ever or that CA no NSA, NSA hacking tools

Vlad Costea (01:36:45):

And it has become so intricate. I spoke to Bruce Fenton or Bitcoin magazine and told me that she was selling stocks in the 90s and she was able to call up customers and say, would you like to buy 100 hundred IBM stocks?

New Speaker (01:37:01):

And they will say yes and only had to provide was a name and an address and they would send by mail some Florida of invoice and if the payment was made within one week, then the purchase was validated and they go on with the transaction. But they did not have to ask for any kind of social security number, driver’s license ID, whatever.

New Speaker (01:37:25):

They did not have to ask for this. They just ask our name and an address. And with this information, they were able to sell stocks and do financial operations. Yeah. Government governments would never allow anything like that. Nowadays they need to track, they need to protect you. They track everything you do. Oh, I feel so protected every day 11 that’s right. And I would never let government protected me from myself. When you’re fearful,

Vlad Costea (01:37:56):

It just means that you’re being protected.

Lazy Ninja (01:38:00):

Well, it’s funny is like, well maybe this isn’t even true, but these protections can, can start out as benevolent, right? Like somebody that literally says, Hey, we need to monitor this to protect these people. They actually might be thinking, we need to monitor this to protect these people. But ultimately the having that information and the ability to collect that information gives a future government the path to authoritarian rule type of thing. I mean, it’s, you know, even though the intent, you know, in the U S here, you know, it’s, people really fight for our, our gun rights.

New Speaker (01:38:40):

And a lot of the argument is, well, you know, the people against liberal gun rights, you know, you can’t if the government, you know, cause some of the argument is you need the guns to protect yourself from the government. And the counter is well, you know, you can’t, you can’t fight tanks and helicopters with you know, with a regular civilian rifle. [inaudible] But it’s, it’s more the government having the ability to take those things indicates that it has the power to do many other things and by, by protecting our rights such that we prevent the government from taking away some of these rights and abilities, it helps prevent sort of a slippery slope type of things in the future from the government taking more rights and other things in order to protect us.

Vlad Costea (01:39:37):

Yeah, it’s difficult. And when you have Bitcoins in the mix, it’s even more delicate. Any form of digital money, which is individual, you own the keys and whatever transaction you are making is both irreversible and written on a public ledger permanently. And if you think about it, it’s all very risky.

Lazy Ninja (01:40:02):

Mmm.

Vlad Costea (01:40:04):

It’s very delicate for Bitcoin because you can see some features as design bugs or flaws that maybe will never get fixed. And it’s frightening that if used by governments to make us, to push us to declare our public keys and addresses that we’re using is going to be a very effective surveillance system with CI now Asus right now they are already can track transactions. And in recent days I even saw that they were able to see through coin joins in the case of massive amounts that were being mixed and sent to one address. And I think that the mistake that they made at some point was to reuse some addresses and

Vlad Costea (01:40:54):

That’s how they were able to track the funds. But anyway, it’s frightening.

Lazy Ninja (01:40:59):

Yeah, absolutely. I yeah, I think, yeah, the biggest vulnerability, you know, as we discussed sort of earlier, I, I think the technology ultimately will get such that through coin join and mechanisms along those lines. We will end up with transactional privacy to a relatively good level. But one of the things that you, it’s really hard to fix in the short term is ownership. Privacy. So, you know, the government, you know, in the U S the government’s gonna government knows I own Bitcoin. And so at some point in the future a government can come and say, you know, Hey, you know, we’re mid this rule about going, you have to do this, that, or this. And yeah,

Vlad Costea (01:41:53):

Sort of a,

Lazy Ninja (01:41:55):

A scary, scary path, but they’re, you know, it’s, it’s, you’re buying on exchanges. There’s, you know, you’ve, you declared you own it. I, I’m actually trying to switch, so I’ve, I’ve sort of sort of stacked up now that I, I, I have the bulk of the coins I want. So I just sort of do regular buying, stacking sets, as everybody says. And I’m really working hard to switch to bisque. Mmm. So that that’s sort of my goal to at least protect some of my future earnings in Bitcoins. At least the government can’t precisely track how much I own. And I was actually what I known about this for awhile. I was actually really surprised at how easy it was. Like it was just sorta install and, and it just work. Did you know about this bladder?

Vlad Costea (01:42:52):

Yeah, I spoke to one of their representatives and I was blown away when I figured out how smart their application can be. And how would you found a work around and the landler you can’t get away from KYC, open source software that you download, run on your PC and make peer to peer transactions in the real sense. Yup.

Lazy Ninja (01:43:18):

Now one trick with it though, right now is still, I’m, I’m not fully not doxing myself cause I’m still making electronic. The popular method is sort of this electronic bank transfer. And ultimately, you know the counterparties name, they know your name, you know the counterparties name. And then there was a record in your bank account. You know, this money came from this person. So there’s all sorts of various risks from that. And so I’m like, well, how do we do this more anonymous Lee? I’m like, Oh, cash deposit. So you, there’s another way

Lazy Ninja (01:43:52):

You can just go to a bank, the account, your counter parties bank and just deposit cash into their account. You just walk up to the counter and just say, here’s the account number, here’s the cash. But so I’m like, Oh, this is way better. Let me look into this more. And it turns out like almost all major banks are starting to ban anonymous cash deposits.

New Speaker (01:44:13):

So I’m like, Holy cow, they’re really closing up all the loopholes. However, the good news is, at least my, I’m a buyer, typically not seller, but at least my bank does allow a relatively big bank does allow anonymous cast deposits still. So we’ll we’ll see if they all shut them down. But like Wells Fargo and bank of America supposedly, at least I’ve read, they’ve shut down counter anonymous counter deposits for cash. So it’s getting harder and harder. It just has to revert to peer-to-peer meetups at some point. But the having a broker in between a certain nice cause it just sort of alleviates a little bit of risk.

Vlad Costea (01:44:55):

I don’t recall ever sending anonymous cash deposits. I know that you can do it here in Romania but they ask you for a name and I suppose you can go up to Donna Mazu and just give out a fake name. But it depends on your luck because sometimes they ask for an ID. Other times they just look at you and say, okay well let me send this money. Just fill in this form and you’re good to go.

Lazy Ninja (01:45:23):

Yeah. For me it’s just you fill out the, he say there’s a deposit slip, you just fill out the name of the person on the account and the account number and the amount and the cash and you just hand it to them and they’re like, thanks. So still a tiny bit of privacy.

Vlad Costea (01:45:39):

So I feel like we have been talking for over two hours and I’m not sure how many people will get to this point, but now we can say anything. Glad cause nobody’s listening anymore. Yeah, exactly. If your deal, listen up to this point, just send a tweet and say, look at me. I’m special. Or something like that. Tag us. Just in case you haven’t heard the first time when I mentioned it, the dash of Lazy Ninja on Twitter is freedom isn’t safe.

New Speaker (01:46:10):

Just one word. No APIs, trove, no nothing, no dashes. Freedomisntsafe, so you can follow him. He is very active nowadays. I don’t think he’s always been like this, but it’s interesting that he gives away security tips and he hacks hardware wallets and has experiences with disc. That’s a good reason to follow him.

And do you have any last piece of advice or closing words or glisten or school will be tweeting at us? Hopefully if they get to display a nothing we probably haven’t already said buy Bitcoin, keep it on a cold, cold storage or a hardware wallet, then you’ll probably be pretty happy in 20 years. Okay, so thank you very much, mr Lazy Ninja. I hope you get a greater following because you deserve it and I’ll see you around. Thanks a lot.

ShiftCrypto’s BitBox02 is one of the most pleasant surprises on the hardware wallet market. It takes the best elements from Trezor (open source audited software) and Ledger (secure element chip), then adds an extra layer of good op-sec by making use of a male connector which eliminates the need for a potentially compromised cable.

From a software perspective, the BitBoxApp allows users to connect to their full node (thus greatly increasing privacy and security) and enables coin control (great for UTXO management).

Furthermore, the research team behind ShiftCrypto has made multiple responsible disclosures about vulnerabilities that they found in their competitors’ devices (for more information, check out The Charlatan’s article on the Coldcard ransom attack, Benma’s report on the Trezor Model T theft attack, and Kaspar Etter’s breakdown of multisig configuration issues). This competitive yet collaborative environment creates better security premises for everybody involved.

ShiftCrypto is one of the actors who definitely improve the greater state of the hardware wallet market. Correspondingly, having co-founders Douglas Bakkum and Jonas Schnelli on this second episode is a privilege and a great opportunity to learn.

For an in-depth analysis of the BitBox02 and other significant devices, read the three-part review that I published in Bitcoin Magazine: Part One, Part Two, Part Three.

Some questions asked to Douglas Bakkum and Jonas Schnelli during the interview:

1. Why should bitcoiners buy a hardware wallet? In which ways is it better than cold storage methods like the paper wallet or the steel plate?

2. Why should that wallet be a BitBox02? What is special about the ShiftCrypto devices, compared to the competition?

3. Can you say something that you like and something that you don’t like about your competition? (this includes Trezor, KeepKey, Coldcard, and Ledger)

4. What is the story of the original BitBox and why was it discontinued so quickly? Do you think that the flaws have been fixed in the 02?

5. What do you think about the fact that Coldcard and Ledger also use the secure element chip design?

6. What is the general feedback that you’ve received for the BitBox02 since launch and what are the features that get most praise?

7. In the experience that I’ve had, the BitBox02 is less friendly with multisig setups than the Trezor Model T and the Coldcard Mk3. Are you planning to make any improvements in this regard?

8. Do you have any kind of recommendations for people who choose not to use your BitBoxApp software and go for Electrum and Wasabi?

9. In the last couple of weeks your researchers have discovered vulnerabilities in the Trezor Model T and the Coldcard Mk3. What was the response you got from your competitors?

10. What are ShiftCrypto’s upcoming plans in the hardware wallet market?

11. Is there backwards compatibility between the BitBox01 and the BitBox02?

12. What are your takes on QR codes? Do you think this is a future step for hardware developers? (asked by EnkiTek on Twitter)

13. Where’s the inspiration come from? What’s behind BitBoxBase and Tep, and what might we expect down the road? (asked by Track Bender on Twitter)

… and many more, the interview was longer and more in-depth than expected.

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Full Transcript:

Vlad Costea (00:00:11):

Hello and welcome to Season 4 Episode 2 of the Bitcoin Takeover Podcast. I am Vlad and today I have two guests who work and have developed Shift Cryptosecurity, one of the rising companies in the hardware wallet market, and just in case you didn’t get accustomed to the format by now the whole season is going to be about hardware wallet makers and their breakers and the names of my guests are Douglas Bakkum and Jonas Schnelli, who is also a Bitcoin core developer. And this is going to be very interesting. So hello gentleman.

Douglas Bakkum (00:04:34):

Thanks for this opportunity.

Jonas Schnelli (00:04:34):

Yes thanks.

Vlad Costea (00:04:35):

No thank you. Because there’s a lot going on and I noticed that the BitBox02 is getting some traction. It’s not quite the holiday season but on Black Friday I saw that Blockstream had some sort of offer with the BitBox02, the Ledger and the Trezor. So you’re basically positioned on their podium. And also there was this video of somebody who tried to order more than four devices and was not able. So if you have this kind of limitation in place, I presume that you’re starting to have a demand for the product.

Douglas Bakkum (00:05:17):

Yeah, it’s slowly picking up. So we just released our BitBox02 hardware wallet, which is our second version device, just a couple of months ago. We spent a lot of time in the last years developing it and we’re quite happy with the response we’ve gotten so far. And we’re looking forward to keep promoting it, keep hearing feedback and keep trying to improve on it.

Vlad Costea (00:05:44):

And Douglas, as far as I know, you’re the creator and designer of the original BitBox, right?

Douglas Bakkum (00:05:51):

Yes. So again, the BitBox02’s our second version. The first one I created and designed myself about four years ago now. And so I do have quite a bit of technical background to be able to do that, of course. But right now my role is the CEO. So, fortunately and unfortunately I don’t get so much chance to do the technical work anymore.

Vlad Costea (00:06:17):

Okay. That’s useful to know. So my first question for both of you is why should Bitcoiners buy a hardware wallet? Because when you ask some security specialists, they’re going to say that it’s better to just use a paper wallet or some other cold storage method. And some people even say that it’s better to get a general purpose item that you cannot distinguish by manufacturer.

Jonas Schnelli (00:06:45):

Yeah, there’s different layers or different thoughts about what’s most secure. In general if you’re going to use the paper wallet, so where do you generate your entropy? Do you going to roll dices, which is really complicated, or do you going to use a computer and generate the paper wallet, which, during the moment of your generation of that actual seed, you may be compromised at that point. So that’s A the critical moment. And then B, what if you want to spend your coins, assume you have created a secure paper wallet. And at some point you want to sell the coins or send them forward, what do you going to do with the paper wallet? So you need to enter the seed again into your computer or eventually in a secure device. And if that device is compromised, the funds may be redirected to the attacker.

New Speaker (00:07:41):

And hardware wallets, they come with very limited attack surface. They have almost no iOS, so it’s like secure on the hardware, and it’s also having usually a non-Linux, dedicated operating system, which is like super small amounts of lines of codes compared to Android with probably 10 millions of lines of code, just for the kernel. And by limiting that our hardware wallets can make sure it’s the least amount of attack vectors possibly.

Vlad Costea (00:08:20):

Okay. I know that generally hardware wallets tend to be very secure unless you have some sort of physical access to them. And maybe this applies to any security device. It’s safe until somebody who is very skilled and knows exactly what to do gets their hands on them. And possibly that’s where the compromise can happen.

Jonas Schnelli (00:08:45):

I see. Yeah. It’s always, the more money you willing to spend to compromise the device, the more likely is it that you’re going to access the secrets on it. There is nothing unhackable—that’s just not possible. So it’s like how secure you make things. So you can take one hardware wallet, but then you can reuse multiple hardware wallets, kind of a split portfolio situation or a Multisig. But at the end everything is hackable, it’s just very complicated. And the BitBox02 also protects from physical thefts, so it’s like, we’re trying to make it impossible for physical theft to access the funds.

Vlad Costea (00:09:33):

So if a user wants to buy a hardware wallet and they’re not quite decided, they don’t know what to do, why should they go for the BitBox02? What is special about it as compared to the competition?

Douglas Bakkum (00:09:51):

Yeah, I can try to answer this one. There are a number of options and more options coming out to the market. And I think in general that’s a good thing. They’re solid competition. I think it’s a good thing to have. If you have a lot of funds, it’s probably a good idea to have a couple of different hardware wallets just in order to reduce some of the manufacturer risk if a problem happens in one of them. But for our hardware wallet in particular, we do think it has some advantages over the competition, some strong advantages, both in terms of usability, also in terms of security, which I can touch on very quickly. So usability—when we designed the BitBox02, we tried to take a lot of lessons from our BitBox01 and apply them to the BitBox02.

New Speaker (00:10:48):

In terms of usability, one of the most popular features of our first hardware wallet was the microSD card. And so we focused a lot on simplicity and the microSD card is one of the best ways to do that. What that refers to specifically is when you first create a hardware wallet, you need to handle the backup safely. And the common way to do that is with this mnemonic word list, and so you write down 12 or 24 words onto a piece of paper, then you have to reenter it into the device in order to check it and so on. And the feedback we got from new users and our resellers is that this is a quite complicated process. They call it mnemonic anxiety, where users especially new users, they don’t really understand the concept.

New Speaker (00:11:38):

And so it’s really stressful during this whole process, that could take 20-30 minutes to write down each letter correctly. And so with the microSD card we eliminate the need for that where the backup is created instantly on the SD card. The concept of a backup is really easy to understand and just saves a lot of stress during the whole process. And so you can set it up. You can also recover a wallet very quickly with the BitBox02. For more expert users or the people more comfortable handling mnemonics, we also do offer the option to display the mnemonic on the screen and to record it down onto paper. So that’s one way.

New Speaker (00:12:26):

In terms of usability, one of the unique things with our second hardware wallet also is the user input. And so we have touch sliders on the sides of the device and those things allow different types of gestures. So a tap, slide, hold, things like that, allows a lot of flexibility there. And we think we can do a lot of really interesting UX with that. And also having the sliders on the side of the device instead of over the screen. Your finger is not in the way of the screen, so it’s a bit better usability experience that way. We’ve gotten a lot of good feedback on the uniqueness and we think also in terms of the different things you need to do on a device such as password entry or scrolling through data, that we can do this in a much more efficient and even fun way. So we’re quite happy about the response to that from the initial users so far.

New Speaker (00:13:21):

In terms of security, when we had our small meeting in Berlin, we talked about it a little bit. I’ll try to summarize very quickly. Looking at Ledger and Trezor, I think they’re the main market leaders at the moment. Their security architecture is a bit different extremes. And we tried to take the best of both worlds. So Trezor for example is open source, which is a really great thing. But these are general purpose microcontroller, which is not designed for security. That’s okay, but it makes it a bit easier for an attacker to access secrets or data on the device if they do physical theft.

New Speaker (00:14:17):

Ledger on the other hand does use a secure element, which is specifically designed to prevent physical access when someone steals a device, that’s a very great thing. But the issue there is, in order to run code on the secure element, they have to sign an NDA with the manufacturer. And so the code is closed source. Important parts of the code are closed source. The problem with this is that in order for a secure element to be labeled a secure element, the manufacturer has to go through a certification process where it can take a year or more in time, it can take $1 million to go through this, so it’s a very costly kind of set up. And in the past it’s been recorded that manufacturers do not have the incentive to fix bugs that happen and it’s inevitable that bugs will happen. And so if these things are used in ATM cards and stuff like that, where it’s probably okay, it’s probably an acceptable level, but when it comes to cryptocurrencies where one small bug could cause your transaction to fly away into the ether and not be recoverable, we think this is just a no-go.

New Speaker (00:15:35):

And the reason that the manufacturers aren’t incentivized to fixed bugs is, in order to change the code—which is oftentimes at the hardware level—they would need to do a chip redesign. They need to redo the certification process so another year to market, another million dollars. And so they have a tendency to just ignore these problems. And it’s to a point now where the quality of the chips are good, but even if you have a one in a million possibility of a bug happening in some side case or edge case, that still means irreversible loss of funds to people. And in my opinion, that’s just a no-go. And so the BitBox02, we tried to take the best of both worlds. So we do use a general purpose microcontroller where all of the code on it is run open source and we use only the most well vetted cryptographic libraries to do that. But we also combine that with the secure chip and the secure chip we use purely for securing the physical access to the device. And so this is also why the threat scenario of theft is also something we protect against.

Vlad Costea (00:16:57):

Okay. Because when I tested it for my Bitcoin Magazine review, which you should also be reading if you’re getting informed. What I liked about it was that within the user interface you were able to connect your full node and also enable a function which allowed you to have UTXO control. I think it’s called Coin Control, in the interface. So these two options, even though they might sound banal or something that should be there, they’re not actually in the interfaces of Trezor and Ledger. So that’s something that I really appreciated.

Jonas Schnelli (00:17:40):

Good point. And since it’s purely on the software layer, it has not too much to do with the hardware itself, but it’s part of our user experience cycle. And I think especially Coin Control to control to control the UTXO I consider that very essential because I don’t A want to link with change. So what Coin Control allows you is forwarding a single received amount to let’s say an exchange. If you don’t want to have a change address, which could be bad for privacy or if there is taint UTXOs. There’s a lot of taint going on with people sending small amounts to larger addresses so they can track you better. And usually normal wallets also take those UTXOs and spend those coins as well. So that manual coin control, I think this is really how it should have been from the beginning. And ultimately coin selection is something that people should have been enabled intentionally.

Vlad Costea (00:18:56):

Yeah. And you also had the Bech32 support from day one, which is something that took other manufacturers a long time to implement. But in regards to coin control, I think it manages to fix and address one of the design issues of Bitcoin. Because when you send somebody any amount, they can see everything even in terms of how much you have and how much people who sent you their Bitcoins had. And they can track all of this information all the way to whoever they want to identify. So if you have, for example, 50 Bitcoins and you want to send 0.1 to somebody, you don’t want them to see that you have 50. Because nowadays that’s a lot of money and you could have just the small UTXO which enables you to send that amount. For example you have a 0.2 UTXO, you’re only going to see that and that’s very useful.

Jonas Schnelli (00:19:53):

Yeah, I mean it’s not a mixer. So there’s still a linkage to your former receiving. But you can choose which ones you want to use, which is a huge benefit in terms of where you have received funds and which ones of those you’re going to spend. Because otherwise your wallet doesn’t make any difference between where you got the money from. And this could be hurtful for your privacy.

Vlad Costea (00:20:23):

Okay. I think the next part of the interview is going to be the toughest one because I want to hear something nice about your competition. And we are going to break this down by manufacturer. So we begin with Trezor because they were the first players on the market.

Douglas Bakkum (00:20:42):

Yeah. So just to take one step back. So I appreciate you also listing some of the other features of the wallet. I just wanted to mention, one other thing is that our desktop app is now also a mobile app. So for Android we released a beta version, which I think is quite cool. So our device itself has a USB-C connector, so you can plug it directly into modern Android phones and we’d be really happy if our existing users can go check that out and give us some feedback so we can get it out of beta.

New Speaker (00:21:16):

Sorry for the quick plug and then to come into the next question, say something nice about our competitors. This is not so hard of a thing to do. And I think in any young field, and cryptocurrencies, hardware wallets especially are a young field, it’s a very important thing for the competitors to look out for each other because in the sense, what’s the saying where, “A rising tide lifts all boats.” I think that really applies in this current field. And so we’re also quite happy to make good relationships with our competitors and try to improve our offerings in all ways for everyone.

New Speaker (00:22:05):

With respect to Trezor, we’ve had a lot of great relationships with them. One really great thing of course is their open source nature. They really stick to the ideals around that. A really great community interaction. We’ve done some responsible disclosures with them and it’s been a really great process. So I’d say they’re quite professional on that end. And so again, I think we share the ideals of keeping everything open source, really contributing to the community. Of course we have business models that compete where we try to sell hardware to customers. But in the end, we think improving the whole ecosystem will just be a benefit for everyone, including both of ourselves and the users in the community.

Vlad Costea (00:23:01):

Can you also say something that you don’t like about Trezor?

Douglas Bakkum (00:23:06):

So this is the hard part. If forced, I think they do a really great job. The hardware they build is really nice. The app is really nice. One of the negatives is that theft is not part of their security model for the hardware. And I hope that they’re working on solutions to that in the future.

Vlad Costea (00:23:41):

Okay. Well let’s move on to Ledger. You’ll have to say something nice about them and something that you don’t like.

Douglas Bakkum (00:23:51):

Sure. So, Ledger, quite respectable company. The market leaders in the field, so they’re really driving a lot of adoption and consumer pickup. I think one of the best things about them is their Ledger. DonJon. Charles, who’s leading that, he’s really a great guy. And again, I think he shares these ideals of, “The rising tide lifts all ships.” So he’s also very interested in our communication to support each other to improve things. And the Ledger DonJon if people don’t know is a specialized white hat hacker enclave that’s an independent part of Ledger. They do a lot of really great work, have a lot of great experts, in order to look at the security of themselves, of course, but also their competitors and related fields. And I think that’s a really great asset for the whole ecosystem.

New Speaker (00:25:03):

As far as things we don’t like, that’s a bit easier. Can use the stereotypical one that they’re using the secure element, which means part of their code has to be closed source, which I talked about a bit earlier.

Vlad Costea (00:25:21):

Okay. That was easy. And talking about it, I think the people on Twitter who buy products and then compare are a lot more toxic and a lot meaner than actually you people, who are the executives and the creators of the devices. I feel like there is some sort of spirit of camraderie maybe, but before I jump to conclusions about that—some people would say it’s a Trezor clone of sorts. I had the first interview of the season with the CTO of Shapeshift. So what do you think about the KeepKey something good and something bad?

Douglas Bakkum (00:26:02):

Yeah, so KeepKey. Originally they were a Trezor clone a number of years ago and I think they weren’t shy about advertising that and talking about it and really trying to take the Trezor model. And again, I think Trezor is okay with it. They’re all open, that’s why their code is open source so other people can improve on it. And they took that code to try to make a better UX in terms of hardware. But naturally in time things do diverge. And so I wouldn’t necessarily call them a Trezor clone anymore. In time, as you have your own hardware platform, your own thoughts, things will diverge and you’ll end up making different design decisions. The KeepKey, I would say in that sense, the positives and negatives are similar to Trezor. So the negative in the sense that they don’t have the secure chip inside, so the threat model doesn’t include theft. The positive is, since they got bought by Shapeshift, they have quite nice usability in terms of the integration with Shapeshift, which is quite a nice thing and something that we’re also interested in exploring.

Vlad Costea (00:27:29):

Okay. Now comes the harder part. What do you think about the ColdCard? Because they don’t like you as far as—

Douglas Bakkum (00:27:35):

They used to like us. I think they still like us, but we’ll see. You’ll have an interview with Rudolfo later, I’m assuming. So Coldcard. I think they have a really well defined target market, which is the people who care mostly about security, and willing to sacrifice usability. And so that brings up immediately one of the negatives. So usability is a challenge when using their device just because you need to have a more expert level knowledge and that’s due to their design choices. They did that on purpose.

New Speaker (00:28:26):

On the other hand, it’s really optimized for security in a lot of ways, which is a great thing. The issues with why you say they don’t like us, I’m not sure if we’ll get into this later or not, but it has to do with a responsible disclosure that we made to them. Probably there was some miscommunication along the lines of what responsible disclosure actually really meant in the end. And how that process would play out. They’re a newer player on the market. So the protocols in place for what steps to go through maybe were not completely in place. And so when we did make our responsible disclosure, there was some kickback from them about whether or not the severity level was really what we think it is and so on and so on.

New Speaker (00:29:22):

And these are all things that we’ve gone through in the past also. And Trezor and Ledger have gone through in the past when first dealing with security reports and things like that. I think it’s just a natural part of the game and having a good bug bounty program in place and getting high quality feedback from—I know there’s some really excellent brains in the field, which you’ll have on your interview of course in the future, that really know ways to hack stuff. And like Jonas said earlier, nothing’s unhackable. And so the thing that we need to do as hardware wallet manufacturers is be really receptive to that and fast, responsive. And they were, they were receptive and responded really fast and put out a fix really fast, and really be receptive to that and take that and improve the products.

Vlad Costea (00:30:25):

So how do you comment on the fact that the BitBox02 and the ColdCard Mk3 use the same secure chip?

Douglas Bakkum (00:30:34):

So I can’t say what their full design decisions are. So the idea of how—we call this a dual chip approach—so having both a general purpose microcontroller and a secure chip, we’re the first ones to do that about four years ago with our first BitBox. You can argue about the way we implemented it was maybe not ideal. But we started that, and then with the second version BitBox and the Coldcard, they use the same architecture, the same chip sets. In our opinion, it made the most sense as far as the security architecture. And I think if you research the different chips that are available and things like that, it’s not too hard to come to your own conclusion that this is a good approach. And so I think that both of us using the same approach with the chip side, maybe co-validates our design choices, and so I’m quite quite happy that they’re doing that.

Vlad Costea (00:31:51):

Okay. Is there any other hardware wallet manufacturer that you think should be mentioned in this section before we move on with another question?

Douglas Bakkum (00:32:02):

Now this is the hard question. You put me on the spot because I don’t want to make anyone left out and feel bad. So I’ll say probably it makes sense to not list anyone in particular, but there are a number of other hardware wallet vendors on the market, a lot of newer ones that came out in the last years. I don’t want to say too much about them. There’s some interesting and quite intriguing design choices. But in terms of promoting them or not, I’d prefer to wait and see how they do on the market and how they do with hacks and so on.

Jonas Schnelli (00:32:49):

Yeah. I think it also needs a lot of time that people analyze the code, people analyze the potential vulnerabilities. All new players, I think they just need to go through 1, 2, 3 years of experience before you realistically can judge them in any ways.

Vlad Costea (00:33:10):

That’s fair. So sometimes I feel like this is the golden age of hardware wallets because there are so many manufacturers that just take the GitHub repository, they fork it, they create their own devices and sometimes they bring some interesting designs. And what I appreciate mostly about hardware wallets is when they look like regular household devices. And something that I like about the BitBox02 by the way, is that it has a male connector. And I don’t know why a lot of manufacturers don’t do that because it looks like a USB flash drive when it’s not turned on and makes sense for it to have that male connector. Plus some people who are very security minded will say that the cable that you’re using can be compromised, so if you’re cutting the cable in the middle, then that’s an extra good security step.

Douglas Bakkum (00:34:10):

Yeah. So the original BitBox01 also had a male connector, USB-A, and the BitBox02 has a USB-C male connector. So originally a lot of what you say is exactly what we were thinking about before. First of all cables, they’re annoying to carry around, but they could also be compromised by people sticking in some spy microchips inside with some kind of wireless output, which has been done in the past. And so we wanted to not need to use a cable and we also thought just a cable-free approach is also a lot easier for usability, so you can just plug it directly into your computer or plug it directly into your phone. And so those are some of the design considerations we were thinking about.

Jonas Schnelli (00:35:07):

We should not forget that we also ship it with the cable. So people who want to use a cable, there’s nothing that stops you even with the male connectors. So we have a female to male cable for extension, so it’s possible to use a cable but we made this decision because it’s just way more natural to use your computer or smartphone.

Vlad Costea (00:35:30):

Yeah. And that looks legit. It looks like a USB flash drive.

Jonas Schnelli (00:35:35):

Yeah. That’s also a feature because we think when you travel with a such device, you don’t want that it looks like a hardware wallet in the first place, because it can also be problematic if you cross borders and anything like this. So we made not that you will see our logo or Bitcoin or BitBox on top of that in first sight.

Vlad Costea (00:36:10):

Yeah. And I think the Ledger has a very good design because it looks like lots of USB flash drives. But when you look at the connector you’re going to notice that it’s female and I think that can give it away as a hardware wallet. I actually had an entire article where I commented on what the devices look like. And for example, on the Coldcard I said that it looks like a calculator, but anyone who takes a closer look will know notice that the screen is way too small. When you’re using a calculator, you want to have more digits for input. And also you don’t have the buttons for mathematical operations. So if it doesn’t have a plus, a minus, a divide, a multiply, then what kind of calculator is it? And that’s very noticeable.

Douglas Bakkum (00:37:08):

Yeah, that’d be pretty cool if they come out with a new model with a calculator plausible deniability feature. I’d like to see that.

Jonas Schnelli (00:37:16):

Yeah. But in the end—any border control officer—you can provide them a list of maybe six devices in case they should seize those devices and look after them. So I think it’s even with the most stealth device, trained people will recognize this as a hardware wallet. But I think it’s great that novice people will maybe have a harder time to figure out what it is.

Vlad Costea (00:37:49):

Yeah. You don’t want to show off. And I think from that perspective the Trezor has the worst of the designs as it looks like some kind of remote control for your car. But unless you have a car and you’re known to actually use that kind of device, then people will be suspicious.

Jonas Schnelli (00:38:15):

Yeah, that’s true.

Vlad Costea (00:38:16):

Anyway, let’s move on with another question. I feel like this dirty part was so graceful—you said everything that was nice to say. And now let me ask you about the original BitBox and why it was discontinued and what kind of issues that you think it had and have been fixed in the 02 model?

Douglas Bakkum (00:38:43):

So yeah, the original BitBox, we talked about it a little bit—it was originally called Digital BitBox when it first came out. That’s been on the market for over three and a half years. I should say we didn’t discontinue support but we stopped selling it last month. And we will continue support officially for one more year, possibly longer than that. And I’d say one of the misconceptions that we realized after the fact is we use the term, “end of life.” And that’s a very technical term in retail hardware products. It doesn’t mean that after one year from now, the device is just going to die and go away, it just means that there’s no guaranteed updates for it after a year from now. You’ll still be able to use it. And so you can still use it with our older apps, or you can still use it with Electrum. It works with Electrum for a number of years now. Just to clarify that.

New Speaker (00:39:56):

And so then the question is Why did we choose to discontinue it? Just like every other hardware wallet, vulnerabilities have been reported on it, but all the vulnerabilities reported on it have been fixed. And so it’s not an issue that there is something that’s not fixed on it. Let’s say the issue is more so, we felt that in the long run, it wouldn’t be competitive on the market because mainly it doesn’t have a screen.

New Speaker (00:40:28):

In addition, not having a screen makes it a bit harder to do the security maintenance. What we did without the screen was we had a secure connection to a mobile app. And so using a mobile app, we phrased it as basically a secure large remote screen. And that worked, but then this introduces another communication channel where people can attack and getting that right takes some effort. And so it’s also a maintenance issue—like a dev resources issue on our end—in order to continue to maintain it. Right now all the vulnerabilities are fixed, but there could be more vulnerabilities found in the future somewhere with that channel. And so those are the main reasons for discontinuing it.

New Speaker (00:41:29):

Again, we don’t want to leave our existing users out in the blue. We will continue support. And if you have issues with it, do contact us at our own support channels and we’ll try to take care of you like we would any of our other customers. So that’s the reason it was discontinued. An additional benefit to that is—time and dev resources are limited—and so if we can put more time into the BitBox02, which we think is a much stronger competitor in the field, and also into our app, trying to make that more usable, try to add features that the users want, we see this as a long run win in the end for our customers.

Vlad Costea (00:42:28):

Maybe this will be a stupid question, but is there any kind of backwards compatibility when you backup on a BitBox01 with the SD card to insert it into the 02 and have it work?

Douglas Bakkum (00:42:44):

It’s not a stupid question at all. We definitely wanted to do that, but unfortunately it’s not the case. The reason for that is, for the BitBox01, the standards for backups and mnemonics like BIP 32, BIP 44 were just coming out. And when we decided what kind of format we were going to make for the backups they weren’t following the exact standards. We tried to do something we thought made more sense, was more secure. But in the end the market hardware wallets and software wallets adopted these other standards. And so when we made the BitBox02 we decided it’d make more sense to have compatibility with the industry standard. And so the backups are different—they’re not going to be forward compatible or backward compatible.

New Speaker (00:43:43):

That said, if you switch wallets, I think it’s good practice to make a fresh wallet. By that I mean sweeping the funds from your old seed—your old hardware wallet, your old software wallet—into a new hardware wallet. And then you can be confident that if you throw away or misplace your old hardware wallet because you’re not using it anymore—you forget about it—someone doesn’t come along and just take it and guess your password or social-engineer you to figure out the password and then access the funds without you being aware.

Vlad Costea (00:44:26):

Okay. So we previously established that the Coldcard and the BitBox02 have the same secure chip, but how would you compare that chip with the one that’s inside the Ledger?

Douglas Bakkum (00:44:40):

I touched on this a little bit earlier talking about our security architecture versus the Ledger. So just to go into that a little bit more: the Coldcard and us are very similar, and we are quite different than the Ledger approach. The Ledger approach uses a secure element where they actually run a lot of the hardware wallet code inside of that secure element. And this is why, again, with the NDAs and so on, that some of their code is closed source. And so the Coldcard and us, we use the secure chip for a different purpose. We don’t run the actual hardware wallet code on it, we’re more using it as the gateway to authenticate your device or log into your device.

New Speaker (00:45:34):

In that sense we can use open source well-vetted cryptographic libraries. For example, we’re using the libsecp library that’s used in Bitcoin Core, which we think is by far the best and safest cryptographic library. Just to talk about bugs in libraries—OpenSSH, OpenSSL is a very common or well-used library, but during the development of libsecp, during a sanity test they found a difference in what the libsecp library produced versus these OpenSSH libraries, the cryptographic libraries. And it turned out that there is a bug in an edge case in the other OpenSSH library. So many people have looked at this, so much testing has gone into this particular library that we think, to do our users justice, we should be using this and we think other hardware wallets should adopt it also.

Vlad Costea (00:46:51):

Also, you mentioned the design similarities between the Coldcard and the BitBox02. This might be another dumb question, but is there a compatibility with backups? So you take the SD card from the BitBox and put it in the Coldcard and it just works?

Douglas Bakkum (00:47:12):

As far as I’m aware, no. I’m not exactly familiar with how they’re doing wallet recovery at the moment. But I believe with the Coldcard you have to enter the mnemonics through the user interface in the screen, not via the backup, but I’m not sure exactly on that point where they’re at right now. So in that sense, the SD card wouldn’t just work, but since we’re using the BIP standards, then if you export the word list from the BitBox02, then you would be able to import that into Coldcard.

Vlad Costea (00:47:54):

At the time right now when we record this, the BitBox02 has been launched on the market for a couple of months. What is the feature that got most praise from your users when you got feedback?

Douglas Bakkum (00:48:11):

We’ve been quite happy with the reviews. We’re making a list on our website if other people are interested in getting some third party opinions on our device. What I’m most happy about is a lot of great feedback about the user experience being both simple and even recommended for new users. But then also having the expert features still available, so that some of the things like Coin Control or connecting your own node to our app for example being possible. In general, it’s maybe not a good idea to try to make a one-size-fits-all solution, but I think we were able to do that with our device, which is quite nice.

New Speaker (00:49:11):

So it’s approachable for new users that don’t have a deep crypto knowledge, but it still offers some advanced expert features that people appreciate. The hardware design is also a general point that users appreciate. Its aesthetics and also, as you mentioned before, it’s discreet appearance so that you wouldn’t recognize it as a hardware wallet per se. It’s also important to note we have two versions of our hardware wallet out. The hardware itself is the same, but the firmware on it is different. We have a Bitcoin-only version, which has gotten a lot of positive feedback. And we also have a BitBox Multi edition which also has some support for different altcoins and also U2F second factor authentication.

Vlad Costea (00:50:11):

All right. So the next two questions are for power users. The first one is what kind of advice would you give to people who decide not to use the BitBox app and go for Electrum or Wasabi?

Jonas Schnelli (00:50:27):

Yeah. Right now on the BitBox02 we’re working on an Electrum plugin. At the very beginning, we identified the plugin landscape as one of the problems in the hardware wallet space, because there’s a lack of a standard, how an existing hot or software wallet can interact with the hardware wallet. So what we right now have is a plugin infrastructure—like Electrum has a bunch of plugins where the plugins are maintained within the code base of Electrum. So that makes it almost impossible for a hardware wallet manager to control the release cycles.

New Speaker (00:51:11):

Imagine there’s a critical bug that makes us knock on the door of Electrum and beg them to do a release, which they could refuse for political reasons or whatever. So the whole plugin infrastructure is not ideal for security in general and especially in our case, with the hardware wallet plugins that have potential problems. Back in 2015, I started to write on the standards, how software wallets could interact with hardware wallets. There hasn’t been a lot of progress in that sense. But there is the HWI library that has been created by a bunch of developers. That seems to be the future GUI element that could make it easy and possible for software wallets and hardware wallets. Right now we strongly recommend to use our software for BitBox02.

Douglas Bakkum (00:52:19):

Yeah. So that said, we look quite positively at Electrum and Thomas who’s running it. It’s a really great project. I think they’re doing things the right way. At the moment our original BitBox does have support. The BitBox02 does not have support yet, but we’re working on making that available in the very near future, and also, for Electrum, for the HWI library that Jonas mentioned.

Vlad Costea (00:52:55):

Now this goes back to that discussion that you had on the Stephan Livera Podcast and I don’t want to reiterate that, but maybe we can make a short summary—Why is a BitBox02 not as friendly with Multisig configurations as, for example, the Trezor model T?

Jonas Schnelli (00:53:15):

Yes, that’s a good point. Multisig has been very much proven on the on-chain side. So it works, the cryptographic assumptions are absolutely bulletproof, but the problem in Multisig is the whole user experience and the security assumption a hardware wallet makes. As an example, when you create a receiving address you need to have your co-signers’ xpubs or at least the public key. So if the concept or the implementation in the hardware wallet firmware has not been made correctly, it could be possible for an attacker to create a fake receiving address. And in the worst case, your coins are locked up with an attacker’s pub key or you eventually send your coins to the new owner.

New Speaker (00:54:17):

Also one of our employees Kaspar Etter has just released a vulnerability for Trezor and Ledger that actually can make these funds really [INAUDIBLE]. So Multisig—the concept in the Bitcoin chain—is absolutely sane, but the concept of how the hardware wallet has to deal with Multisig hasn’t been really worked out yet. So that’s why we haven’t implemented and served it to the users right now, and all the work on conceptual layers—that’s also why we have discovered those vulnerabilities.

Douglas Bakkum (00:54:57):

And just to add on that—Kaspar did really great work on that—and just a day or two ago, we actually released a blog post titled “The Pitfalls of Multisig on Hardware Wallets.” And so there’s a lot of material there that goes into further depth about why it’s not so straightforward to do security with Multisig.

Jonas Schnelli (00:55:22):

And it’s a simple conclusion: it could be more harmful to use Multisig currently than using Singlesig in certain situations. So before that [INAUDIBLE] out on the conceptual layer, I think using Singlesig is still—or maybe split your funds onto multiple hardware wallets—it’s maybe the better option right now, especially for users without a lot of experience.

Vlad Costea (00:55:52):

I was about to mention your research team, because in the last few weeks you have made a lot of disclosures and you have found vulnerabilities and Coldcard and the Trezor and in the Ledger, which is impressive.

Douglas Bakkum (00:56:10):

Yeah, just to give some context there. So it’s not that we actively sought out to find vulnerabilities in our competitors. It was more so, we really want to put Multisig into production for our products, and one of the first things we did was look and see how the others did it. And when we did that, we ended up finding a number of vulnerabilities that we responsibly disclosed to each of them. And that’s where this came out. That’s also why all of these responses came out at the same time, it’s because they were found at the same time. Again, if you check out our blogs you can find a link in our website shiftcrypto.ch it’ll give you a lot more details about each of these situations.

Vlad Costea (00:57:07):

So would you say that the responses that you got were positive?

Douglas Bakkum (00:57:13):

The responses from the community, the vast majority were positive. The interaction with Trezor again was really, really great, really amazing. Ledger in the end they said that the stuff we disclosed was expected behavior. You can read more about it, but the conversation with them was very good also. Coldcard, you had mentioned before, they weren’t so happy with the severity level that we labeled with some of their vulnerabilities, which led to a little bit of a heated Twitter discussion. In the end I should say that, Coldcard—especially with Multisig—probably did do the best job of all of them. It’s unfortunate it became too heated because in the end it probably wasn’t such a big deal.

Vlad Costea (00:58:29):

So the final question that I have for you, and this isn’t the final question of the interview because there are two more on Twitter that people have asked, but the final one that I have for you is about your future plans and what are you planning to do on this hardware wallet market in the future? And how will the BitBox02 evolve in time?

Jonas Schnelli (00:58:54):

First we can tap into the BitBox Base project we have started longer than a year ago, which is a full node, including a hardware wallet that we call the secure element, which is a complete open source project. Also the hardware might be open to build it on your own. It’s just a thing we think would be more interesting for all of our users. And if you haven’t read about the BitBox Base project, it’s only worth to go to the shiftcrypto.ch website and read up. We are in the process of shipping the first batch of devices to a bunch of people.

Douglas Bakkum (00:59:46):

Just to expand on that. Of course we’re interested in developing the BitBox02 further, we’re also interested in expanding our product offerings. And so the Base is a full Bitcoin node, eventually Lightning will be added also. We think this addresses a lot of the privacy concerns that are still an issue in Bitcoin especially. Whereas hardware wallets solve the security issue. What that means is if you use a hardware wallet, unless you can connect your own full node—which we offer that option in our app—but the vast majority of people don’t. So when you need to check out how many coins you have in your hardware wallet, you have to use a third party service.

New Speaker (01:00:39):

It could be us, it could be Trezor or Ledger—I’m not saying any of us would actually spy on people. But in the future we could be forced to if a government forces us to check out someone’s specific address. So if you’re using our service to probe the blockchain, basically your whole financial history is exposed and that’s something that people tend to not want to expose. I know there’s all this talk about “people don’t care about privacy anymore, people post everything on Facebook” and so on. But one thing they don’t really post on Facebook every week is their bank statements, for example. And so I think there are certain things that people do want to have private and BitBox Base addresses that. As far as the hardware wallet itself, we have a lot of ideas.

New Speaker (01:01:29):

Multisig of course as we mentioned before is something we want to add on. We want to continue to improve the usability. We’re quite happy that people like the usability already, but there’s always ways we can continue to improve that. We have the mobile app coming, which a lot of people have given us pretty good feedback on, multi-language support, things like that. But really continuing to improve on the overall user experience, the usability. Also try to give different types of services that people need such as fiat onramps and things like that.

Vlad Costea (01:02:06):

All right, so [INAUDIBLE] from Twitter, he wants to know where the inspiration came from for your devices, what’s behind the BitBox Base and tech projects, what we might expect down the road? So similar to my question, but more specific to the product.

Douglas Bakkum (01:02:26):

Okay. We answered some of the Base stuff already, but maybe Jonas you want to jump in?

Jonas Schnelli (01:02:33):

Yeah, I think the Base project, it’s probably worth to read up further on our website. There’s a lot of possibilities people can build with it. Maybe a mixer that automatically mixes coins. It could be Lightning situations which are HSM, it could be pool services that you get information that you received coins in a secure way.

New Speaker (01:02:59):

But in general for a lot of people privacy is equally or even more important than the funds themselves because if you are in a regime where disclosing your financial information can bring you in prison, that could be a situation where privacy is more valuable than the wealth itself. So I think having privacy as an option is super important. And it’s also combined with trust. So if you’re using a third party service, it’s not only about privacy, it’s also about trust. If you have received coins, it could [INAUDIBLE] those, it could not show you those. Or they could even show you fake coins in terms of unconfirmed, incoming UTXOs.

Douglas Bakkum (01:03:53):

At a higher level, all of us in our team, Jonas especially, but our whole team is quite motivated by just the whole cryptocurrency revolution, where we think it’s really early right now. A lot of the infrastructure, a lot of the tools still need to be put in place so that it’s easier for the whole world to take advantage of the opportunities that cryptocurrencies and Bitcoin present. And so from a company point of view we really want to give these tools and we think hardware especially will play a crucial role. and we think self-sovereign hardware is the best solution available.

New Speaker (01:04:51):

So that includes solving the security needs with hardware wallets, solving the privacy needs with the BitBox Base and full nodes, solving usability issues with our BitBox app. If you look at what makes cryptocurrency special, it’s these great properties like being decentralized, being permissionless, censorship resistant and so on. And we think if you don’t have self-custody, self-sovereign solutions, if you don’t hold your own keys, of course, “Not your keys, not your funds.” There can be problems in the long run, in the sense that, if everyone just puts their funds on centralized exchanges—can ignore all the hacking risks—this is a slippery slope back into the traditional way of doing things in the financial world.

New Speaker (01:05:51):

It’s also a slippery slope in the traditional way that governments can exert control. For example, if you’re a crypto company trying to open a bank account there’s a whole bunch of hurdles you have to go through in order to do that. And the government’s really paying attention to everything. So these properties that make crypto special slowly fade away. And we think that the only way to prevent that from happening is self-sovereign solutions and decentralized hardware. So that’s a bigger-picture motivation. One of the things in the question also is something we called TEP. what TEP stands for is Tamper Evident Packaging. It is a physical object, but it’s not electronic circuits. It’s a quite simple thing.

New Speaker (01:06:47):

And one of the biggest issues in the hardware wallet field but also in a number of other fields is, how do you secure the supply chain? How do you protect against someone tampering or replacing your device on the way from being shipped to the user? A really great example that came out a year or two ago was with one of Ledgers’ resellers where the reseller opened the box, they programmed the device, set up a wallet on it, changed the instruction manual. So when the device got to the user the instruction manual, said, you’re all set, your wallet is ready, have fun, go at it. But of course the reseller then had the private key. So if you put any coins on it the reseller could just steal it.

New Speaker (01:07:39):

So the device has to station things like that. They help, but they don’t solve this particular situation. So we tried to think of a solution that can solve that. And this is tamper evident packaging. We just launched an alpha, so we’re shipping some alpha devices for early testers, and on our website you can read more about it. The [TEP] concept is hard to explain in words, but it’s easy if you watch the video, but the concept is: we a little pouch with some small beads in it. You shake it up. And so you get a lot of entropy in the random pattern of these small beads inside this pouch. And then you vacuum seal this whole thing together with the enclosure and whatever you want to protect inside.

New Speaker (01:08:32):

That locks into place what we call a temporary fingerprint—this pattern. We take a photo of that before it leaves our warehouses. And when the user gets it, there’s a QR code, they can go scan that in. They can see what the picture looks like through our website. And they can compare this temporary fingerprint—this pattern of the beads in the pouch—and they can see whether or not the device was opened along the way, because in order to tamper with the device, you have to break the vacuum. And once you break the vacuum, the pattern will disappear.

Vlad Costea (01:09:15):

All right. So I don’t think the TEP was around the last time I checked your website, but it’s definitely interesting. And [INAUDIBLE] wants to know what your take is on QR codes. And if you think this is a future step for hardware developers—I’m not sure what he means—but you possibly know better?

Jonas Schnelli (01:09:37):

Yeah. I think I know what he means. Usually the problem is how you get unsigned transactions into your hardware wallet. Most hardware wallet vendors currently use the USB port, so you connect to your computer through USB and our hardware wallet considers that an insecure port. So whatever comes in there will be verified on the device with the onscreen approach. Or you can use the SD card approach as mainly Coldcard users with the PSBTs. And the third approach would be using QR codes. So imagine your wallet in the desktop could display a bunch of QR codes. You read those QR codes with your hardware wallet and this would bypass the whole need for a cable or even connecting to your computer.

New Speaker (01:10:34):

This is a nice approach but also has problems. There were [INAUDIBLE] secure code libraries where actually reading a QR code could produce a buffer overflow. Maybe could collude your device in the worst case. I think QR code is not safe from any types of vulnerabilities, but it will be a cool way how you could air gap your device.

Douglas Bakkum (01:11:05):

So just to expand on that, I think psychologically air gapping your device by only reading QR codes and displaying QR codes is a nice concept. But I think in the end it’s just a different way to transmit data from your computer to a device. You still need to transfer the same types of data, which is: what is a transaction, how much do you want to send and things like that. So a lot of the attack factors—having a QR code modality—it doesn’t really change these attack factors. It’s still the same data—it’s how the microcontroller on the hardware wallet interprets that data, which is where the attack would come in. That would be the same if you’re using a USB cable or a QR code reader. Of course a big difference then is the bandwidth. A QR code reader has a lot lower bandwidth than USB. You don’t need too much bandwidth for hardware wallet transactions. Sometimes you do, but usually that’s not really an issue. So one of the advantages there would be, time wise, a bit less time to actually perform an attack. In the end, a lot of the attacks are similar.

Vlad Costea (01:12:33):

So I know that—I’m not going to name any names—but a very important person for a very important hardware wallet manufacturer said that users can basically just go on eBay and buy used hardware wallets. And they’re going to be safe. Are you going to make any recommendations like that?

Douglas Bakkum (01:12:56):

Never. You want to go into depth?

Jonas Schnelli (01:13:02):

Yeah. I think the supply chain risk is just too high. It’s very complicated. But I would definitely not recommend to buy second-hand hardware wallets.

Douglas Bakkum (01:13:17):

It brings up the concept again that, given enough time and money, anything can be hacked. Also, things can be forged and so you can make imitations of different hardware wallets. I think that happened to Trezor in the past. Buying a used hardware wallet on eBay or whatever, all of these different types of attacks are possible. A forged device, some kind of modified device or pre-setup wallet with different seeds. A reprogrammed device is quite—I wouldn’t risk it. I mean for small amounts of funds it’s probably okay. But I just wouldn’t trust that for holding any significant amount of funds.

Vlad Costea (01:14:14):

I just love the skepticism in this space.

Jonas Schnelli (01:14:20):

Yeah, it’s crazy. It also brings up the question, What means second-hand? Obviously you think somebody has used it before, but it’s also the question, what if you buy it from a reseller? So it’s like getting into the same direction. Obviously it’s not because the product is still sealed in some ways, but what means sealed—easy to reseal or not? But I think we’ve did the max we could to make sure the product cannot be spoofed in any ways in terms of loading different firmwares. It’s impossible in our hardware wallets and it should be very easy to visually inspect that it is okay. But again, it’s just impossible.

Douglas Bakkum (01:15:05):

We can’t say impossible. Just try to make it very, very hard.

Vlad Costea (01:15:11):

All right, so we mentioned purchasing the BitBox02. Where can people listening to this get the device?

Douglas Bakkum (01:15:19):

So go to our website shiftcrypto.ch. You’ll see a a shop link and you can buy our device there along with some interesting little accessories. Also that link will bring you to a different list of resellers we have around the world. An advantage of a reseller is a bit cheaper shipping costs if you can find one in your own area. But yeah, check out our website, shiftcrypto.ch.

Vlad Costea (01:15:47):

You also sell devices at conferences that you attend or in places where people can buy without signing up with their address and full name or the delivery?

Douglas Bakkum (01:16:00):

Yes. At the conferences we attend we do sell a limited number of devices. If you’re in Switzerland, one of our resellers has set up an anonymous way to purchase devices. So you can check that out through our reseller links.

Vlad Costea (01:16:23):

All right. I think the last question belongs to Stadicus. He posted a GIF on Twitter and asked if this is a tag team or versus podcast mode.

Douglas Bakkum (01:16:44):

I didn’t see the GIF so I can’t comment. Stadicus is one of our team members, for those not aware.

Vlad Costea (01:16:54):

Yeah he works on the BitBox—

Douglas Bakkum (01:16:56):

BitBox Base. He’s the project lead on that. So I’m sorry Stadicus, I don’t get the question.

Vlad Costea (01:17:08):

I’m going to show it to you, because he also asked, “The winner gets the Lambo?” and I’m not sure if you saw the title card, but it has a retro 1980’s Lambo in the middle. You probably don’t spend much time on Twitter, which is possibly for the best.

Douglas Bakkum (01:17:35):

Jonas is on there a lot.

Vlad Costea (01:17:35):

All right. I don’t have any more questions for you. If you have anything to add before we wrap up this interview?

Douglas Bakkum (01:17:41):

No, it was a pleasure talking to you Vlad, it was great getting to know you at the last conference. And so thank you very much for this opportunity. I look forward to talking with you a lot in the future also.

Jonas Schnelli (01:17:55):

Yeah, thank you very much Vlad for doing this. Appreciate it.

Vlad Costea (01:18:00):

I mean, we said it at the same time, so it must be mutual, so thank you.