It’s a moment true bitcoin nerds have been waiting for.
In the coming release of Bitcoin Core, the 18th major version of the cryptocurrency’s most widely used software, the code will finally, natively allow users to connect bitcoin full nodes to hardware wallets.
It sounds technical, but it’s a big step for the security for users. Bitcoin full nodes allow users to verify that transactions actually took place, meanwhile, hardware wallets are considered one of the most secure ways to store bitcoin. Thus, making it easier to join the two together is a big win for users who want full control of their bitcoin – and don’t want to lose it.
Bitcoin Core lead maintainer Wladimir van der Laan, who is in charge of coordinating the coming upgrade, told CoinDesk it’s one of the features he’s been most excited about for quite some time.
Still, the change is part of a much broader effort to make bitcoin full nodes easier to use for people other than just tech geeks. Casa, for example, has launched a node that works without much setup necessary, while developers of the bitcoin protocol are constantly trying to reduce how much data users need to store to run one (as users need to store every transaction ever sent on the blockchain, it’s pretty weighty).
As Bitcoin Core contributor Andrew Chow, one of the lead developers on the project, put it on Twitter:
“With this [pull request] merged, the upcoming Bitcoin Core 0.18 release will be finally usable with hardware wallets by using [Hardware Wallet Interface (HWI)].”
He admits it’s “still command line only and manual,” but argued “it’s a big step forward” because the functionality is finally there, even if in a somewhat clunky form. Developers will continue to make it easier to use down the line.
Eating your cake
So first off, why use a bitcoin full node in the first place?
In order to send a transaction on the bitcoin network, users need to connect to a bitcoin node. Full nodes now require a couple of hundred gigabytes of data, which is a lot, enough to fill a small laptop.
But it does serve a purpose, as rather than trust that someone else is feeding you the correct financial information, such as whether you really received a transaction or not, you’re able to validate this information yourself.
As the value proposition of bitcoin is to not trust others, some developers go as far as to argue that using bitcoin in a way that removes the full node defeats the purpose of bitcoin.
Bitcoin Core contributor Sjors Provoost, for example, has argued that running a full node is helpful for “knowing your bitcoin is real,” offering the example of Segwit2x, a proposed bitcoin fork from 2017 in which some companies, miners, and users proposed upgrading bitcoin to a larger block size.
There was concern that in the case Segwit2x broke bitcoin into two, mobile wallets relying on Simplified Payment Verification (SPV) technology would be susceptible to trickery from miners.
“That server can in theory also lie about your balance. In a scenario like SegWit2x, it could decide which side of the fork it wants to show you. With a full node you don’t have to worry about that,” Provoost told CoinDesk.
Then there’s the issue of privacy.
“The wallet software that normally comes with hardware wallets reveals your addresses to a third-party server,” Provoost continued. The full node would replace this wallet software, giving users privacy again.
“At the end of the day, it comes down to the trade-off between convenience and trust,” Bitcoin Core wallet maintainer Samuel Dobson told CoinDesk.
These problems are what’s fueling the idea that maybe one day “everyone” should run this full node software, so they don’t have to trust anyone else to send them accurate financial information.
“Yes, I believe that everybody will eventually run a full node. I wish a future where not having a full node will severely limit your user experience and the realm of things you can do with bitcoin,” as BTCPay creator Nicolas Dorier wrote in a recent blog post.
Secure, offline bitcoin
The other piece is hardware wallets are considered the most secure way to store bitcoin. That’s especially true when compared to storing them on internet-connected computers, which are often totally exposed to hackers.
“PCs are a much larger attack surface than a small dedicated device to store your keys, designed specifically with security in mind. They’re also less prone to random crashes or corruption which could cause you to lose un-backed-up keys on your computer,” Dobson told CoinDesk.
With this new tech in place in the Bitcoin Core software, users can store their bitcoin on an offline hardware wallet, then use their full node to verify the data they’re getting fed, such as transaction data, is correct.
The technology has been a long-time coming. Connecting hardware to a full node is also one of the key goals of Electrum Personal Server, pioneered by developer Chris Belcher. “Hopefully this software can be part of the plan to get full node wallets into the hands of as many people as possible,” he said in the project announcement post last year.
There are pros and cons to each project, though, Provoost admitted.
“The HWI project should reduce the number of separate software components needed, though at the moment I think it’s still less user-friendly [than Electrum Personal Server],” he said.
And there’s still a ways to go to get the graphical interface totally working. “Maybe one day in the future we’ll have this graphical picture that I showed you – and after that we’ll have unicorns,” Provoost said in his presentation on the topic.
While hardware wallet support in 0.18 has generated much excitement, As usual, the release is filled with other contributions from the pool of global Bitcoin Core contributors.
Dobson told CoinDesk about a few features he finds “exciting,” including refinements to a new “language” that the groundwork was laid for in an earlier version of Bitcoin Core. New commands will allow developers to use this language to “import descriptors.”
“You can provide such a descriptor to Core […] and it will parse it and import the keys, scripts, etc. into your wallet for you,” Dobson said, explaining further:
“This is the first step in a longer term goal to rework the wallet and support these descriptors natively within it, which will clean things up immensely and provide a much more natural behaviours, in line with how you would expect things to behave (and which don’t exactly behave that way currently).”
Dobson also pointed to a new “multiwallet” command, which will allow users to pair with multiple wallets within their bitcoin core full node. While the ability to use multiple wallets at once has existed in the code previously, 0.18.0 plugs the feature in the graphical user interface for the first time, so people no longer have to be full-blown developers using the command line to take advantage of the feature.
“Version 0.18 adds support to the GUI to do that, as well as a few improvements in how it works too,” Dobson said.
As of now, version 0.18 is in the “release candidate” stage of the software development cycle, meaning passionate bitcoin developers and companies are still testing it, picking away at the code in an effort to eradicate any bugs, before it’s released to the larger public to download.
According to project developers, it will be available for users to download in the coming weeks.
Bitcoin image via Shutterstock
The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.SecurityHardware WalletsBitcoin Core
Sparkswap Raises $3.5 Million From Initialized, Pantera for Lightning-Powered DEX
Leigh Cuen Apr 8, 2019 at 13:00 UTC Updated Apr 8, 2019 at 13:40 UTCNEWS
UPDATE (April 8, 13:40 UTC): The funding round was led by Initialized Capital, not Pantera Capital. The headline has been updated.
A San Francisco-based decentralized exchange (DEX) called Sparkswap launched Monday, becoming the first North American exchange to fully integrate the lightning network, a bitcoin scaling solution.
Sparkswap is funded by a $3.5 million seed round led by Initialized Capital, with involvement from venture capital firms such as Pantera Capital and Foundation Capital. This lightning-powered DEX – which differentiates itself from traditional exchanges by requiring users to custody their own crypto – offers cross-chain atomic swaps between bitcoin and litecoin.
Explaining how these off-chain lightning trades work, Sparkswap co-founder Trey Griffith told CoinDesk:
“Our users download some open source software we’ve developed that includes widgets and LND, the lightning implementation, along with a wallet that can hold, in this case, litecoin and bitcoin. When they trade, they talk to a service that we run called a relayer, that broadcasts an intent to trade at a specific position … then other users can take the other side of that trade by communicating with the relayer.”
Due to the experimental nature of the nascent lightning network, Sparkswap imposed a $2,500 daily trading limit for the first few months, with plans to raise the limit and add more trading pairs in the near future.
Brett Gibson, a partner at Initialized Capital, told CoinDesk that Sparkswap was the first startup he’s seen that offers traders self-custody without sacrificing speed.
“[It has] the performance and other characteristics of a decentralized exchange [but] can perform like a centralized one,” he said.
Fellow investor Paul Veradittakit from Pantera Capital added that Sparkswap caught his eye because it’s one of the few DEX startups to focus, albeit not exclusively, on bitcoin rather than ethereum-based tokens.
“Institutional traders want speed, efficiency, optionality and security,” Veradittakit told CoinDesk. “I think if lightning [developers] continue to execute and provide scalability and cross-chain atomic swaps … [lightning] should be able to fulfill that promise of speed and efficiency.”
However, there’s a long road ahead before those lightning-enabled trades can be implemented on a wider scale.
Timing is everything
Griffith will be the first to admit that Sparkswap plans to observe user behavior and develop mechanisms to address lightning’s current limitations. This Sparkswap release is still in beta.
One of the key issues Sparkswap will need to address is what happens if one party pulls out of a trade mid-way because the price fluctuates during the process.
Lightning Labs engineer Alex Bosworth, who works on the LND implementation that Sparkswap leverages, told CoinDesk it’s not clear yet whether the technology will be consistently faster than fully centralized processes.
“If you actually look at the script, it says that it could happen instantly but it could also take longer,” Bosworth said. “You still have an issue of timing with the cross-chain swaps. This is a problem for making this into a service that works with a lot of money.”
To complicate matters, there is also a cultural gap between the institutional traders Sparkswap seeks to serve and the capabilities lightning currently offers. Many such traders swap millions of dollars worth of cryptocurrency at a time, not just a couple thousand, and they often do so with pre-determined partners.
“Just from a business perspective, I know that a lot of trading that happens on exchanges is actually done through contracts and trust,” Bosworth said. “I actually see the industry going in a more trusted direction.”
Despite these challenges, Bosworth is optimistically curious to see how lightning channels add additional value throughout the trading process.
Growing the network
According to Griffith, Sparkswap’s offering for professional traders could impact the broader economics of the lightning network.
For example, imagine you’re a bitcoin standing in line at Disneyland to ride Splash Mountain. If you’re closer to the front of the line, then you have more value than a bitcoin farther back – or a bitcoin in another line for a less popular ride. Just as with amusement park lines, there is positional value with crypto in payment channels.
“If I have a channel that’s in a good position directed toward a high-value target, it’s worth more to me than bitcoin that is just sitting in a cold wallet, because I can earn money on it,” Bosworth said.
Speaking to how this applies to Sparkswap, technically Sparkswap wallets can be used to send payments to anyone using the lightning network, mirroring payment options offered by centralized exchanges like Zebpay. As such, Sparkswap users could become high-value participants in the broader network.
“Our application could help the lightning network grow both in terms of tools and in users,” Griffith said, adding:
“An application like Sparkswap could really push lightning toward higher transaction uses. Most of the uses of the lightning network today are microtransactions and this could help support bigger transactions.”
Indeed, according to bitcoinvisuals.com, the average lightning channel capacity is currently less than $200.
In addition to boosting the lightning network’s capacity for bitcoin, Griffith said Sparkswap plans to explore ways for the exchange to integrate support for stablecoins and ethereum-based assets as well.
“Our approach of using cross-chain swaps on lightning or cross-chain swaps on payment channel networks allows us to maximize interoperability,” Griffith said.
Sparkswap founding team (left to right, Bradley Stachurski, Trey Griffith, Danny Pazuchowski and Martine Ehrlich) image courtesy of the company
The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.ExchangesLitecoinBitcoinLightning Network
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