Of the many questions asked by bitcoin newcomers, “how do I make sure nobody nicks my digital gold?” is probably one of the most pressing.
Stories of rogue exchanges and pilfered wallets abound from the early days of bitcoin, and any bitcoiner worth their satoshis would likely advise a newbie to store their bitcoins offline.
Well, not just offline, but in a heavily encrypted hard drive. Or alternatively, on a piece of paper stored in a fireproof safe. Or better yet, just memorise the private key, destroy the computer on which you bought the coins and hope that the price of bitcoin hits $10,000 before old age erodes your memory.
Aside from being daunting, requiring people to get to grips with jargon like ‘cold storage’ or ‘brain wallet’, these charmingly prosaic methods of storage seem somewhat out of sync with the huge potential of digital currencies: “here’s the currency of the internet, keep it in your drawer”.
Learning the hard way
More importantly, keeping your bitcoins offline is no guarantee that they will be safe, as James Howells discovered when he accidentally threw away a hard drive containing 7,500 BTC (a move that ensured no other techie again would ever dispose of a hard drive again without doing a bitcheck).
What was needed was a secure way of storing bitcoin that also had a ‘Get out of jail free card’, a way of hitting reset so that you could keep your money under your mattress, but not run the risk of losing it if the house burnt down. Enter Elliptic, a UK bitcoin storage service insured by Lloyds of London.
Elliptic’s founder Tom Robinson told CoinDesk:
“Before Elliptic Vault, people thought that they had no choice but to take sole responsibility for safekeeping their bitcoins – still a fairly technical task beyond the capabilities of many people.”
Much is being made at the moment about the need to make bitcoin accessible to the wider population – mainly by people whose companies are seeking a wide audience, it should be said.
Jeremy Allaire of Circle, for example, is one of those people, arguing that average consumers need to “feel like that money is secure and no-one can steal it”.
Potential solutions
There are technical solutions, as well as financial ones (in the form of insurance) but ultimately trust is an intangible quantity that isn’t straightforward to earn. Robinson admitted:
“The primary concerns [we have found] have been around customers being willing to trust Elliptic to take care of their hard-earned bitcoins. We need to earn that trust.”
Part of the effort to earn that trust has been engaging heavily with the bitcoin community, including helping to organise the recent Satoshi Square event in London.
So far, around half of Elliptic’s customers have been UK-based, with a number in the US and customers as far afield as South Korea.
He declines to discuss exact figures, but says that people have been choosing a limited liability of £5,000 and upwards, hardly surprising given that’s the minimum Elliptic covers.
Of course, the service doesn’t come free – you pay 2% of your deposited amount per year, which is reasonable while the price of bitcoin continues to rise, but will seem less so with greater price stability (traditional banking services are either free or charge a fixed fee, rather than a percentage). Robinson said:
“One of the great advantages of cryptocurrencies is that if you have the skills, you can very effectively protect and take responsibility for your own wealth. But for those who cannot or do not want to, it’s a positive step to be able to rely on a trusted third-party who will do this for you.”
Insured storage isn’t the only service Elliptic hopes to offer. The company has previously said it wants to launch an exchange, but Robinson says he wants to “consolidate our position in bitcoin storage” before developing other products.
This includes “exploring some of the little-explored and hugely-promising features of the Bitcoin protocol, such as smart contracts.”
For now, at least, the focus is on making sure their customers’ bitcoins are safe – as Robinson points out, having to use the insurance would be a failure, not a success.
Vault image via Shutterstock