Coinbase attempts to achieve a dramatic increase in the number of digital assets listed on its platform. The move resulted in some drastic reconsideration of how the San Francisco-based crypto exchange protects billions of dollars worth of digital currencies.
In line with this, Coinbase has transferred retail traders’ virtual assets (roughly $55 million) into its upgraded storage model last week. The exchange says that the migration is composed of 5 percent of all Bitcoin, 8 percent of all Ethereum, and 25 percent of all Litecoin currently in circulation.
Coinbase head of security Phillip Martin says that it took them four months to plan the migration procedure, adding that this is a “fundamentally new architecture.” He explains that the company has gone to great lengths to coordinate with regulators and address media speculation surrounding the development.
The procedure began way back October with a key generation process, in which the Coinbase team proceeds to a secure location armed with a new computer and the prints out keys, which are then divided utilizing formats consisting of “scannable” QR codes.
Martin explains that this cryptographic technique is known as Shamir’s Secret Sharing.
Containing billions of dollars worth of keys, the binders are then segregated among numerous secure locations. The process requires several Coinbase staff coordinating over the phone to unlock the digital currency.
Although various Bitcoin custodians choose to depend on multi-signature wallets as compared to a single key separated into different parts, Coinbase has developed this technique to accommodate assets that have yet to work with multisig wallets.
While Coinbase has implemented this strategy to the highest volume of assets at present, institutional custodian BitGo has also employed key sharding as custody solution for various tokens.
Mike Belshe, the CEO of BitGo, states that his company will not support any asset that does not have the ability to accommodate multisig custody model.
Belshe says that on the part of Ethereum, which does not support on-chain multisig, his team uses multisig via smart contracts. He further states that his company utilizes key sharding combined with multisig, adding that BitGo is still searching for a more reliable custodial procedure, instead of having “a lot of breadth.”
Robin Verderosa, the VP of product marketing at BitGo indicates that both BitGo and Coinbase employ the same reporting and compliance techniques, which can provide an opportunity for the two companies to include support for nascent assets and policies in the coming months.
She adds that regulators have delved “very deep” into the company’s cold storage solutions.
That said, insurance providers, auditors, and even compliance experts will remain a vital part of assessing said procedures. Meanwhile, Martin believes that this signifies that the market is maturing.
On the other hand, Coinbase’s strategy is very distinct in such a way that it targets a one-size-fits-all cold storage procedure that can pave the way for faster expansions.
Martin points out that the company is unable to change the process immediately especially when there is $5 billion worth of digital currencies involved. He continues by saying that this is “critical” to Coinbase’s capacity to serve an extensive variety of assets as they go online.