Coinbase, a leading cryptocurrency exchange that allows a secure online platform for buying, selling, transferring and storing digital assets, has secured a patent for a secure bitcoin payment system. The system aims to safeguard consumers who wish to use bitcoin as a mode of payment but often refrain from using it owing to the risk of revealing their private keys at checkout. (See also: Protect Your Bitcoins Against Theft and Hacks.)
Details about the newly published patent on the U.S. Patent and Trademark Office (USPTO) website indicate how Coinbase can build a payment system that would allow users to pay using bitcoins directly from their digital wallet and make bitcoin purchases more secure for the customers.
Highlighting the possible security flaws in present-day digital-wallet-based bitcoin payment systems, where the private keys of bitcoin addresses are vulnerable to theft, the patent proposes an alternative system to protect the keys.
Key-Based System for Secure Checkouts, Payments
The new system envisages using a key ceremony application that is used to create a for-distribution master key. This master key can be stored in memory, then split into any number of shares called key shares, and these key shares are distributed among any number of custodians. The for-distribution master key can then be cleared from the memory. These key shares are then combined into a master key, which is secured by inclusion of the user’s passphrase. Better than a standard password, a passphrase is a string of words or characters used to enable access to a computer, network or database resources.
This master key is valid for a specified period of time and can be made public for payment processing. It expires after the set time elapses. Essentially, this passphrase-equipped master key is used for making secure payments at checkout and for necessary transaction signing without revealing the private key of the bitcoin address. The internal mechanism of the system decrypts the master key and ensures payment reaches the designated account. Since the private keys are never revealed in this process, the payment and transaction signing process remains relatively secure compared to present-day system of using the private keys.
The system also incorporates a "freeze logic," a security measure with which an administrator can suspend the system, halting all transactions in an adverse situation. (See also: Hackers Use Unsafe Clients to Steal $20M in Ether.)
Theft and hacking has been a big concern regarding the mass adoption of cryptocurrencies as a mainstream medium of payment. Once operational, the new key share and master-key-based system patented by Coinbase could potentially bolster users’ confidence in transactions using bitcoins or other digital assets for day-to-day purchases. (See also: Lost Cryptocoins or Wallet Keys? Call Crypto Hunters.)
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no cryptocurrencies.