Beyond cryptocurrency: Hardware wallets as blockchain infrastructure
The right kind of wallet can be used to store data and authenticate transactions beyond cryptocurrency.
Hardware wallets are a significant cornerstone of cryptocurrency's budding history. They first arrived on the scene in 2014, when a combination of circumstances ripened around their creation.
The two main circumstances might be that bitcoin prices cracked $1,000 for the first time, creating an entirely new sense of urgency around the drive for additional crypto security, and that bitcoin had now been around long enough for people to get to know it and ponder what portable consumer-grade cryptocurrency "vaults" would have to look like.
Here's the kicker though: cryptocurrency hardware wallets aren't just for digital money. Securely holding cryptocurrency and facilitating transactions with cryptocurrency isn't that much different from securely holding and transmitting any other kind of data. Moving digital money is one of the most current applications, but down the line this field can open up to secure data transactions of any kind, and portable cold storage for data of any kind.
Today's cryptocurrency hardware wallets are a gateway to any kind of application that requires someone to securely connect two data points together, just like a bitcoin transaction connects a public and private key. Picture, for example, storing sensitive personal data in a cryptocurrency hardware wallet and then verifying individual data points as needed.
If it seems impractical, it might be because today's visions of what a hardware wallet should look like are a bit narrow.
A transaction by any other name
As purely digital assets, cryptocurrencies are everywhere and nowhere. The closest thing they have to a physical location is the blockchain itself. When you "hold" a cryptocurrency, what you actually hold is a private key that is tied to a certain bundle of cryptocurrency. This cryptocurrency bundle is defined by the public key. A crypto wallet address is a shorthand version of the public key.
You access cryptocurrencies by pairing their public key with an appropriate private key. Essentially, a transaction is locked in by matching two data points.
These data points can be different things. In the case of bitcoin it's a public and a private key which have to match up before someone can access a specific bundle of bitcoin.
In another example, it might be that someone must have to provide the identity data that proves they have power of attorney before they touch an indisposed person's assets, swipe cards that only work in the hands of authorised people, and whatever else someone can dream up.
Where the hardware wallets come in
In the case of cryptocurrency, hardware wallets are an offline (cold) box for private keys that you pair with an online (hot) wallet. When you want to make a transfer, you plug in the hardware wallet and it supplies the private keys. This is like signing off on a transaction. The private key itself is typically kept in an insulated, encrypted format on the cold wallet, so even if someone manages to get a hold of your hardware wallet there should be no way for them to crack it open and steal the keys.
Before you can send a hardware wallet transaction you must "prove" to the wallet that you are its legitimate owner by entering a password of some kind. You also need to prove that you're physically present by pushing a button on it.
You might also provide other forms of proof to digital wallets, similar to how you can unlock a phone with a fingerprint. The main difference between a locked phone and a locked hardware wallet might be that cryptocurrency hardware wallets are entirely offline and specifically designed to handle blockchain data. This introduces the kind of security and immutability that can really bring these systems to life.
If you buy the premise that portable personal cold data storage is going to be an important part of the future, there might be two directions you can see it going now.
- Blockchain smartphones with built in hardware wallets.
- Smaller, more portable and more versatile hardware wallets. Picture something with the form factor of a credit card, which can interface with almost any kind of smartphone or other appropriately designed device.
Michael Ou, founder and CEO of the Taiwan-based hardware wallet manufacturer CoolBitX, is very deliberately going for the latter.
Cryptocurrency is just the beginning
The CoolBitX flagship product is the Cool Wallet S. It has the unique distinction of being an electronic hardware wallet with the form factor of a credit card, just a few millimetres thick.
"Our expertise is in building credit card form factor blockchain cold storage," he says.
It was a path taken very deliberately in anticipation of a future need for the most convenient and versatile blockchain cold storage systems possible. And what can be more convenient, familiar, portable or compatible than a card?
"90% of the population use their smartphone all the time, but not all of them use laptops all the time," Ou says. "It was specifically designed for smartphone users. Back then, all the players except for us - the other USB-based wallets - designed for laptop users, which is a huge surprise for us because we don't think that's an ideal way to push the market. We started thinking, what will people be comfortable using all the time, and carrying with them all the time? That's why we wanted to develop something for the smartphone."
"In the long term vision, blockchain will certainly be bigger than cryptocurrency. It's a kind of a new protocol, where all kinds of industries can adapt," Ou says. "So I keep thinking one day we'll be adapting blockchain technology in governments - when the time comes, that will be a blockchain ID card... users will be able to unlock forms online using their card as the ID card."
"What our product is, is the infrastructure of blockchain. Blockchain is indestructible itself, but what blockchain needs is a method to recognise you are being you. Because blockchains don't recognise people - they only recognise public key, private key, and transactions. So our product, our infrastructure, is the best, most user friendly interface for blockchain to recognise that you are you."
He's got a point. Right now you probably already have a card on your person that can be used to tell others that you are you.
But by adding hardware wallet-type functionality to it, that card could also tell people that you are actually you rather than someone who just looks similar to you, or tell someone over the Internet that you are physically present at a certain location with the card, or that your fingerprints match the fingerprints of the card's rightful owner... and so on.
"Voting remotely - it's going to be a big thing for a lot of countries," Ou suggests. "If a blockchain voting system fails to have a good way to identify one citizen from another, then it's going to cause a lot of chaos. In Taiwan I'm happy to say there are a lot of government officials actively pushing these systems and telling them to be more transparent and innovative."
CoolBitX is in active conversations with some of these government officials, Ou notes. "It's an ongoing discussion."
A home ground advantage
Beyond giving CoolBitX the space to stretch its blockchain innovation legs, being based in Taiwan also confers it some more immediate commercial benefits. It's one of relatively few regions that could allow the commercially viable development of something as complex, and most of all as compact, as the Cool Wallet S.
"For a regular IT company to come up with a product like this, it's going to take at least 3 years," Ou reckons. "But if the form factor is different, if it's as big as a smartphone, its a lot easier - it will take only 6 months or 8 months. If you're talking about building a wallet in a credit card size, that's extremely difficult. It's the same in all electronics production. If you want to make things smaller its more expensive, - the entrance is always higher."
"Being in Taiwan is an absolute production advantage because we have everything we need in the supply chain within 100km. We [also] have a very unique competitive advantage in the hardware and product design because we have an exclusive. It's a company called SmartDisplayer, with banking and security solutions serving over 50 banks in 30 countries - even Apple and Samsung are clients. We used a very similar expertise to bring the banking security into so-called blockchain security."
"There's a lot to be done in the blockchain space. Everything's new. Most of the tech startups didn't have as solid banking security solutions as we have. We see that as a very good advantage."
And even then it was a tight squeeze at times.
"There was even a point of time the bitcoin market was so bad we couldn't make enough revenue, so I was not able to make salaries to my staff for 4 or 5 months," Ou recalled. "But I'm glad we made it and things changed so much."
A cracking pace
Development of the first generation Cool Wallet began in 2014, and it was released in 2015. It went from zero to release at a rollicking pace, but it still wasn't always enough to stay ahead of the quickly changing tastes of the cryptocurrency market, and rapid technological shifts elsewhere.
"In 2014 we started developing the prototype. In 2015 we had the first-generation mass production Cool Wallet. It only supported bitcoin, and could not be upgraded," Ou said. "Then we realised the market needed something to support multiple coins."
It's the kind of changing user need that may have blindsided a lot of the earlier cryptocurrency wallet manufacturers. The cryptocurrency ecosystem was a lot emptier then and bitcoin's market dominance was consistently above 90%. By contrast, it's more consistently in the 50% range these days.
And so development began on the next generation Cool Wallet S. It would be released in 2018, after much heavier development and ongoing design updates to mesh with newer technologies. In addition to its multi-currency functionality, the next generation Cool Wallet S would also end up with contact charging rather than the earlier's wireless charging, for better battery performance. A chipset that handles all algorithmic calculations instead of partial calculations, also ensures better security.
It's also a remarkably prescient piece of engineering. Back in 2015 CoolBitX was aiming to create a piece of high tech cryptographic technology, with working buttons and a screen, the size of a credit card, that worked with all smartphones and would have to meet the needs of an unknown number of users before all those needs were fully apparent.
It was probably as tough as you'd imagine, especially because the design team chose to incorporate Bluetooth rather than compromise on the wallet's eventual effectiveness.
"Bluetooth is the only feasible communication vector that works with both iOS and Android devices, and cables are not compatible on two different platforms," Ou explains. "So we decided to go with Bluetooth and that's super difficult. We didn't realise Bluetooth would be such a headache. Every single different smartphone brand, say Acer Asus, Huawei... they all use different Bluetooth chips. We had to make [the wallet] compatible to every different type of Bluetooth chip from very different brands. It took us a long time. Over 2 years to keep configuring to all the differences."
"I assume that would be a very high entry buy-in for all the wallet companies that want to buy. I think that is why we are the only Bluetooth hardware wallet now."
So, was it all worth it?
Well, it left CoolBitX as one the only companies in the world currently able to quickly produce a hardware wallet with a credit card form factor, universal Bluetooth compatibility, a built-in screen, pushable buttons and the ability to securely hold all kinds of blockchain data, in a country that's assertively exploring blockchain applications in ID, voting and more. That sounds like a hard yes.
Incidentally, the wallet itself looks like this:
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, XLM, BTC
- Bakkt Bitcoin warehouse opens its doors to all customers
- Zilliqa-powered stablecoin launched by Xfers
- Power Ledger’s first large-scale commercial rollout commencing in South Australia
- Ripple On-Demand Liquidity now available in Australia through FlashFX partnership
- Opinion: The new Bitcoin price manipulation allegations are a bit silly