Recap from OST LIVE with Ben Chan, CTO of BitGo — Cryptocurrency Custodial Solutions

BitGo CTO Benedict Chan discusses cryptocurrency custodial solutions, multi-sig wallets, the WBTC project and provides an outlook on scaling and tokenization. BitGo is the leading provider in security, compliance, and custodial solutions and supports over 90 blockchain-based currencies.

Ben Chan, CTO at BitGo
In 2012, Mr. Chan moved to California where he worked for Microsoft, building dialogue comprehension technology that has since been integrated into Microsoft Connect as well as other products that involved speech and language recognition. In describing his first experience with Bitcoin in 2012, Mr. Chan says “people looked at Bitcoin script like how we look at Ethereum smart contracts now, in that they could be used to program more than just a transfer of money, meaning that the core idea is that a piece of code can decide how much money you can unlock or how much money gets sent.” Intrigued by the concept of using mathematics and consensus to verify information, he looked further into understanding the blockchain and started to work on Bitcoin projects.

In 2014, Mt. Gox, a Tokyo-based exchange that handled over 70% of worldwide bitcoin transactions, was hacked of approximately 850,000 bitcoins. Amid the hack, Mr. Chan looked into how to solve wallet security problems with multi-sig wallets and became one of the first employees at BitGo in 2014. Mike Belshe, a former engineer at Google dedicated to building Chrome, founded BitGo in 2014. Mr. Belshe also created the SPDY protocol and was the lead author of HTTP/2.0, the internet protocol responsible for loading web pages today.

The Custody Problem
By definition, custodianship is the act of holding an asset on behalf of someone else. Custodianship is important, especially when a third party such as a bank or a hedge fund holds funds for an individual. There are strict requirements and regulations for financial institutions that hold assets on behalf of investors. At a minimum, financial institutions must exercise caution to ensure that funds do not get lost. This can be a challenge when dealing with cryptocurrency financial services. The purpose of a custodian is to provide compliant and transparent reporting so that individuals can view available funds at any time. BitGo is set to provide custody for cryptocurrency assets, first by being a qualified custodian fully regulated by the South Dakota Division of Banking.

Cryptocurrency Custodial Solutions
In the event of a compromise with a single-signature wallet, either internally or externally, it would be extremely difficult to be able to know who stole the private key. After the Mt. Gox hack, multi-sig wallets began to gain popularity as they provide better security and reliability. With multi-sig wallets, more than one key is needed to execute a transaction. If a multi-sig wallet gets compromised, one can at least determine which key was used to sign a transaction. In a ⅔ multi-sig wallet, a backup key is generated in the event of a lost key. Mr. Chan says “this is the first time that you can do anything like that because there’s no concept of multi-sig in the real world.” Even bank vaults that require multiple signatures to open a vault are still in the custodianship of the bank.

With multi-sig wallets, a user is given multiple keys to store in different places. Only two out of the three keys are needed to sign a transaction. Some individuals usually hand over a key to a family member. Startup companies usually have each co-founder hold a key and have a key ceremony for the third one, which requires both co-founders to be present. With larger companies, the company itself holds 1 or 2 keys and gives BitGo the 3rd key to hold as a co-signer. The concept of a co-signer requires every transaction coming from the wallet in a typical operation to have a signature from the key at the company and a signature from a secondary entity like BitGo. This prevents an insider from obtaining both of the keys.

Outlook on Scaling and Tokenization
Mr. Chan is confident that the scalability problem will be solved but says that “the most important part about scalability is adoption. There’s no point in selling a database with a billion transactions per second if nobody’s going to use it.” He mentioned that at the start of this year, there were more transactions than could fit into blockchain blocks, comparing this moment to “turning customers away from the door.” He adds on to say that “Ethereum 2.0 is really awesome, but it’s still not coming next month. There are other solutions like OST or Plasma standards that projects are building under and coming up with what looks like a workable solution.”

He believes people will use blockchain if we can solve for fast transactions and cheap costs without having too many challenges and complexities involved. Ben believes that people tokenizing their business should have an expectation that it will scale, otherwise there is no point in tokenizing on a platform that won’t scale a business. The main challenge for tokenization is the quality of what is being tokenized, adding that “the success of a tokenization platform depends on the timing of a great token use case.”

Coming Up Next on OST LIVE: Nate McKervey
Nate McKervey will be joining us on November 1st to discuss the potential of blockchain and the possibilities of DLT enterprise solutions. Nate McKervey is an entrepreneurial technologist and keynote speaker focused on Blockchain & DLT and it’s intersection with Big Data, Machine Learning, and IoT. Subscribe to our YouTube channel or listen to the audio format anywhere you listen to podcasts, including on iTunes, TuneIn, and Spotify. We’re also now available on Alexa! Simply add “OST LIVE” to your flash briefing.

About OST
OST blockchain infrastructure empowers new economies for mainstream businesses and emerging DApps. OST leads development of the OpenST Protocol, a framework for tokenizing businesses. In September 2018 OST introduced the OpenST Mosaic Protocol for running meta-blockchains to scale Ethereum applications to billions of users. OST KIT is a full-stack suite of developer tools, APIs and SDKs for managing blockchain economies. OST partners reach more than 300 million end-users. OST has offices in Berlin, New York, Hong Kong, and Pune. OST is backed by leading institutional equity investors including Tencent, Greycroft, Vectr Ventures, 500 Startups.