The concept of self-custody in a decentralized ecosystem is probably one of the greatest advantages of cryptocurrencies. It means that crypto can be stored securely and managed solely by its holder. With crypto scams on the rise, the freedom to manage your crypto in a manner of your choosing and the security of your digital assets is extremely important.

During bitcoin’s infancy, a user had to choose between wallet safety and convenience of use. The user could either take the help of online wallets that provided ease of use but were not completely safe or choose hardware wallets that provided safety but not very easy to use. But hardware wallets are evolving and striving to strike the right balance between security, the convenience of use, among other benefits.

Jack Dorsey’s Block is focussing on these aspects to create a self-custody hardware wallet. Jesse Dorogusker, Block’s head of hardware, confirmed the news within a tweet saying, “We have decided to build a hardware wallet and service to make bitcoin custody more mainstream".

Product Design Engineer, Nick Slaney, stated that it’s not just a self-custody wallet, but much more than that. His recent tweet read, “Jack started out calling what we’re working on a hardware wallet, but even though we’re developing a hardware device, the name barely does it justice. It’s so much more.”

What are hardware wallets and how are they different from the other types?

There are mainly two types of wallets--hosted wallets and self-custody or non-custodial wallets that also include hardware wallets. You can choose the right one depending on your need.

The wallets you create on exchange websites like WazirX and CoinDCX are custodian wallets – that means your cryptocurrency is held and managed by the exchange. These wallets do not store your private key, which is required to initiate and approve your transactions. Moreover, these wallets are also connected to the blockchain network 24x7 (hot storage), thus making them vulnerable to cyberattacks and theft.

Self-custody or non-custodial wallets differ in operations from other crypto wallets. Non-custodial wallets allow you to store the private key, thus giving you complete control of your digital assets and cryptocurrencies. You are solely responsible for its storage and the protection of your private key.

Hardware wallets are non-custodial wallets that involve a physical device like a pen drive to store your private key offline (cold storage) and are thus impervious to hacks and cyberattacks. These wallets also allow you to lend, borrow and exchange crypto assets more easily.

Hardware wallets are connected to an application either on the mobile, web or desktop through which you can monitor your bitcoin transactions. The private key is stored in this hardware wallet and every time you want to confirm a payment, the transaction is done inside the hardware wallet and then the transaction completion details are sent to the app.

What is unique about Block’s self-custodial wallet?

Block claims it is combining multiple aspects of crypto management into one comprehensive solution. Nick Slaney tweeted, “We’re combining the security of cold storage, the peace of mind of shared custody, and the convenience of a custodial app all into one easy-to-use solution that puts you in control of your own keys (and by extension your financial security).” He went on to explain, “It’s the best of all worlds, and changes the game for bitcoin holders, as well as future bitcoin economy participants.”

According to Jesse Dorogusker, the direction of product development can be summarised in four points from which we can make some basic inferences:

“Bitcoin first” – It means that Block’s focus is on a self-custody wallet specifically for Bitcoin. However, in all probability, it will also be useful for storing other cryptocurrencies.

“Global distribution” – It will be made available in developing countries as well.

“Natively multisig, “to achieve “assisted-self-custody” – Multiple signatures authorise transactions, which means multiple people can share custody. (Improves security as there is no single point of failure in case one person misplaces the private key and loses access to the crypto assets forever.)

“In our solution, we’ll have three keys: one in the hardware wallet, one in the mobile application, and one in Square’s servers, protected by the same world-class security we bring to the rest of our ecosystem,” Block’s mailing list explains.

“Prioritising mobile use” – It will enable on-the-go crypto management.

The product is expected to be affordable, highly secure, and user-friendly. “The end result will be a product that lets anyone custody their own keys easily and securely, making holding and transacting as intuitive as possible and opening the future of financial sovereignty up too a much wider audience,” read another one of Slaney’s tweets.

First Published:Feb 28, 2022 8:39 PM IST