{ "episodeId": "SLP106", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "diogo_monica": { "name": "Diogo Monica", "role": "guest", "tag": "DIOGO" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 9.33, "text": "Hi and welcome to the Stephan Livera podcast focused on Bitcoin and Austrian economics. This is episode one hundred and six and today we are starting the Bitcoin custody series. But first, a word from the sponsors. So have you looked into Kraken? Over my years, I've been really impressed with the way Kraken operate. They've got a really strong focus on security. With Kraken Security Labs and they've also been really acting ethically in the space. They are one of the longest standing Bitcoin exchanges, they are consistently rated the best, they offer some of the best liquidity in the industry, they've got high trading volume and low fees with no minimum or hidden fees. Kraken have twenty four seven support and on the institutional and business solution side, they're providing best in class accounting, reconciliation and reporting services for cryptocurrency hedge funds, asset managers and fund administrators. Kraken have an OTC desk Those higher touch large block trades, they offer five fiat currencies and they also offer margin and futures trading. To learn more and sign up, go to the Kraken link in the show notes. Next up, Unchained Capital, Bitcoin financial services. So this is the Bitcoin custody series. Remember, Unchained Capital offer a two of three keys multi-signature vault product. You can use Trezor or Ledger. It's got a really easy interface to go through and set up. I found it really easy. For those of you who aren't as technical and aren't as capable to- Do your own setup, this is a good option. And remember, Unchained also offer Bitcoin collateralized loans, so you can get USD liquidity without selling your bitcoins, meaning you don't trigger a capital gains event, so that might be more tax efficient for you. And remember, they've got this concept called collaborative custody, where if you use that service, it's stored in a dedicated multi-signature address. If you wanna learn more about that, go to the Unchained Capital link in the show notes. Alright, so with the Bitcoin custody series, hopefully this works nicely as a follow-on from my prior series, which was the hardware wallet interview series. So just a few preamble comments. So if you're new to Bitcoin, within Bitcoin we have this ethos of not your keys, not your coins, meaning your bitcoins are actually secured by a private key, and what's happening under the hood is your wallet and your software is managing those private keys for you, and what you wanna do is Get to a situation where you are the one holding and managing those keys rather than delegating that or trusting somebody else to manage those keys for you, which is what you're effectively doing if you leave your bitcoins on the exchange. Now, that said, if you wanna do this well, there are some challenges associated with this. So, for example, There is this concept of minimizing the attack surface or trying to reduce the vectors by which somebody could steal your private keys. And so this is where things such as hardware wallets are used or other concepts to try and defend against some of these attacks. And some of these could be malicious code that is being executed to steal your private keys. It could be malicious code or bugs or exploits that are designed to make you spend your bitcoins to the attacker's address unknowingly to you, obviously. There are side channel attacks, there are operational security security risks, and there's also estate planning to consider. So there's a lot here, and then there's also this concept around segregation of funds. So the way people might typically do it is they might have a- Hodl stack, and that's where they put the maximum security into that, and then they might have a smaller stash that they keep just on their phone just for day-to-day spending. And, funnily enough, in this interview, Diogo Monica talks about some of the examples of why he's trying to break that idea for an institutional point of view. and then just also consider that there are different possible setups. So you might be keeping it on a mobile phone, you might be just using a single hardware wallet, or then you might get to a level of using multi-signature And then beyond that, there's the institutional level where they might need additional features such as insurance, faster access to the bitcoins, more formalized access management, some other forms of business recovery, et cetera. Right? So if you're a newbie, some of this material may be a little confronting with the level of detail and the effort required to execute Glacier Protocol, but don't be disheartened. Think of it more like, assess what level you are at and then how you can take steps to take one more step in the direction of improving your security, right? So a typical pro- Progression that I have seen over my years is someone might buy Bitcoin and they leave it on the, on the exchange. Obviously, bad practice, don't do that. Next level is buying a hardware wallet and then pulling those out of the exchange onto your hardware wallet. And then the next level typically might be learning to run a node, but not necessarily connected to the hardware wallet. And then the next level beyond that might be running a node and connecting to your hardware wallet, and also- Along the way, you wanna look and consider options such as multi-signature, so check out my earlier interview with Michael Flaxman w-where we talk about some of these ideas around why multi-signature is additive. So On to the interview today, our guest is Diogo Monica. He is the co-founder and president of Anchorage. He was previously working at Docker and Square. He also holds a PhD in computer science in network security, so he's obviously got a very strong background in this area. Diogo is also a project lead and maintainer of the Glacier Protocol. So in this conversation, we talk about Glacier Protocol and some of the underlying principles behind it, why some of these decisions are made, for example, to use eternally quarantined hardware or hand transcription or dice rolling or the efforts around blocking side channels. One small note, I did my best to try and make sure the audio was good and unfortunately, I wasn't able to identify an audio problem that came up. However, I think it- It is more at the level of minor annoyance, not a showstopper. There was just a very light, weird digital background noise coming on Diogo's side. I couldn't hear it when we were doing the interview, so apologies about that, but I'm confident the interview is still very listenable, and I'm sure you guys will get a lot of value out of it. So here is the interview. Diogo, welcome to the show! Thank you for having me. So, Diogo, I know, you are working on-- so you're a computer security expert, you're, you're working on both Glacier Protocol and also working at Anchorage. Let's get a little bit of background on you. So, how did you get started in computer security?" }, { "speaker": "diogo_monica", "time": "06:26", "start": 386.38, "text": "Right. So security, the interest really came when, when I was young and, my dad just, taught me how to program. I think I was twelve at the time, and I immediately got interested in, creating software that, you know, opened and closed, CD-ROMs and, allowed, access to remote computers, and a lot of that was my, my first passion and interest So immediately that led me to think about information security as a career, and so it was in that field, computer science and information security, that I did my masters, my, my bachelor's, and my PhD So a PhD focused on distributed systems and information security in general. So I think the interest really comes from those early days of, programming and, and installing cool software on my parents' computer" }, { "speaker": "stephan", "time": "07:09", "start": 429.32, "text": "Where was the Bitcoin angle? Where did that come in for you? I think the" }, { "speaker": "diogo_monica", "time": "07:12", "start": 432.38, "text": "Bitcoin" }, { "speaker": "stephan", "time": "07:13", "start": 432.76, "text": "is a pretty" }, { "speaker": "diogo_monica", "time": "07:13", "start": 433.44, "text": "interesting overlap of skill set, if you, if you, if you see my background. Early on, academic experience, I was publishing academic papers in Hashcash in two thousand and eight, and publishing academic papers in quorum security and Byzantine fault tolerance, and so all of these aspects of, Bitcoin, they're just the core way that Bitcoin solves against the Sybil attack. I was publishing in the exact same field, just not focused on money and, sound money and stores of value or, or really payment systems. And so when, Bitcoin became popular and started becoming popular, at the time I was, a platform security lead at a company called Square. It was effectively just all of the elements of my academic background Brought onto the information security world with a really interesting payment angle. So that's how the Bitcoin really came into, into my life, and was discovered, and I was obviously immediately Curious about it because I had been working and in fact using hashcash for, for civil proofing, some protocols and distributed systems in the past." }, { "speaker": "stephan", "time": "08:14", "start": 493.65, "text": "So then let's hear a little bit about your role with, Anchorage and then also the role with Glacier Protocol. Absolutely." }, { "speaker": "diogo_monica", "time": "08:20", "start": 500.43, "text": "So the Glacier Protocol at the time, was, was being led by, two, two other folks, that, that had created the original protocol, and they were looking for somebody to take it on On and take it to the next level. And so at the time, I was very interested in, this aspect of, of custody. In fact, when I was still at Docker, so after Square, I joined a company called Docker, and I led the security team over there. And while I was at Docker, a lot of these funds in- Crypto funds that were being created in the run up of prices in two thousand and seventeen start reaching out to me for consulting and for, helping them effectively with cold storage, operational security, Management of keys, investing in all of these cryptographic assets that they didn't really have a lot of knowledge on how to protect. And so it was as part of that that I involved myself with the Glacier Protocol, and I took over them maintainership of it and, have pushed, that what is today the, the golden standard for, self-custody of, of Bitcoin. And so at the same time that I was contributing to Glacier, I saw the need for an institutional solution that could actually provide it to institutions For the same exact problem, because it was very clear to me at that point that cold storage was not enough for institutional custody, and there's a lot of drawbacks that cold storage has, and all of these new protocols that require active participation just weren't made to be held in a safety deposit box Stored in the mountains somewhere. And so that's when I, when I started Anchorage and me and my co-founder Nathan McAuley decided to create a platform that allowed us to have the better parts of cold storage and really security and safety that is better than cold storage, but allowed us to have accessibility. So there were no compromises for the funds in terms of Fast access to funds and active participation." }, { "speaker": "stephan", "time": "10:03", "start": 602.52, "text": "Fantastic. So it's like you're trying to balance the different needs there, right? So obviously they would try to keep most of the, you know, bitcoins, in cold storage, but there may need to be a portion that is available readily for their transactional usage. Is that the main goal there?" }, { "speaker": "diogo_monica", "time": "10:19", "start": 618.73, "text": "The goal was actually to, to break this concept of hot and cold storage. So somehow we'd gotten into our heads that the same principle that applies to, caching and latency, by the way, hot and cold comes from, from cache Right? It's, it's hot if it's under a hundred milliseconds or ten milliseconds, and you ask for a webpage, and the webpage is immediately available, and it's cold if it takes a round trip to the database or if it has to be stored in Amazon Glacier, and it's like deep cold storage of data. That's where hot and cold comes from. But the reality is that if you think about it, this is storage, and hot and cold doesn't apply to security. Imagine, for example, that I have a protocol that takes twenty-four hours to access your Bitcoin, and I create another protocol that takes forty-eight hours, and now I ask you which one is the safest protocol? You can't tell me the difference. You don't know what happens in those twenty-four hours that adds more safety to either one. And so the reality is that hot and cold in this, this, dimensional, b-dimensional, just, slider between security and temperature is just not a good way of describing security at all. And so we just broke away from that model and said, no, all of your assets should be available, not just a small percentage of them, and all of your assets should be- be safer than cold storage and should have that level of security. And so there shouldn't be no compromise where a small percentage of your assets are vulnerable in an online system and a large percentage of them are inaccessible." }, { "speaker": "stephan", "time": "11:42", "start": 701.68, "text": "Right, okay. Yeah, that's a very different way of thinking about it. I, I'd, I'd be curious to also just dig a little bit into the Glacier Protocol as well to understand what was the history around that, why was it created? Was it essentially that the, the Bitcoin, the value of Bitcoin was rising and then there was a need to store that safely? That's exactly right." }, { "speaker": "diogo_monica", "time": "12:00", "start": 719.95, "text": "So the value of Bitcoin, was, was rising pretty fast. There were a lot of individuals that had significant amounts of Bitcoin, and Bitcoin cold storage and Bero Bank is, is of the fundam-fundamental ethos of Bitcoin, not your, not your keys, not your Bitcoin, there's a lot of this, this, this thought process around Bitcoin storage itself, and for individuals, In retail, in the space, I think that makes a lot of sense. And so there was a need for a very paranoid version of a cold storage solution. So think of the, the, the Glacier Protocol is the golden standard. If you did the best at every single step of the way, at every single point of decision making around cassetting your Bitcoin, if you selected the safest solution It's effectively Glacier Protocol is what you get when you make every single, decision by just considering security. And so it is a very bulky process. It's a PDF and a website that you can follow. I think the PDF form has over a hundred pages and describes exactly how to use eternally quarantine hardware, how to do entropy, secure, generation of random data for key generation, how to safeguard these keys keys, how to use them in a safe manner, what the devices that you need, how to maintain them, how to do multisig, so all of these different aspects that were just not-- that there was no single reference of the- The, the mo- the most safe version of every single decision for, for, for Bitcoin custody. And so that was the goal of, of, of Glacier Protocol and the reason why it was created." }, { "speaker": "stephan", "time": "13:30", "start": 809.6, "text": "Yeah, that's fantastic. And I was having a read through some of the doc-documents obviously, and so there were some di-different design decisions or principles that are being followed. So one was this idea of very low risk tolerance, and it's saying, what does it mean to just take someone from, say, low risk tolerance down to the very low level? And what's, what Take you from that, that to that, and part of that is, as you're mentioning this, quarantined hardware, and there's another key one I was interested to discuss with you, it's preferring risk elimination over risk reduction. So there are certain risks that you would try to com- entirely just blow those away." }, { "speaker": "diogo_monica", "time": "14:08", "start": 847.94, "text": "That's right. And so it's, core decisions such as having eternally quarantined hardware. There's hardware that never communicates to the internet, and it's in existence. In fact, you would buy a laptop, you would, drill, or open the laptop and effectively take the cards away that allow for Wi-Fi communication, ensuring that this laptop isn't ever connected to the internet to the internet. And so this air gapping of the laptop and the quarantine of the laptop from the internet is one of those things that are effectively, a categorical solution against some, some kinds of attacks and really, really eliminates risk in that Instead of just, being a mitigation. And of course, at the end of the day, it's always a set of trade-offs, and one of the trade-offs that obviously Glacier Protocol has is usability. Not only usability, it was the- Designed originally for individuals, and it doesn't encompass a lot of these other requirements that institutions have, things like anti-coercion, things like business continuity, things like, fast access, things like, different policies for different companies and different, stashes of Bitcoin, auditability. So all of these things are just things that not considered because it was created for individuals, but for individuals, it is a fantastic way to actually store your" }, { "speaker": "stephan", "time": "15:17", "start": 917.37, "text": "Bitcoin. Yeah, that's fantastic, and I like, there's also a component here around, being more paranoid around key generation. So there's a combination, not just dev random, but also using dice rolling for, entropy generation. So the actual document or the guide says to get some casino dice and literal, literally do sixty-two dice rolls, incorporate that, and I believe it's an XOR function to sort of combine the randomness to make sure that we're getting a sufficient Quality of randomness." }, { "speaker": "diogo_monica", "time": "15:44", "start": 944.09, "text": "That's right. So there's, PRNG, so there's a pseudo-random, generator from which the keys of Bitcoin are actually generated that includes not only randomness from the computer, but in case the computer has, Some kind of faulty randomness generator or backdoor randomness generator. It also includes this, this die and casino dice rolls, that allows you to effectively add more input and more, entropy into the randomness itself. That there's no, maliciously generated Bitcoin keys." }, { "speaker": "stephan", "time": "16:12", "start": 972.27, "text": "Yeah. And then there's another feature around, or function, I guess, feature of it is around no hardware wallets, no printers, no network connections. So everything is, well, most things are literally hand transcribed, or, in the case of certain components that are less privacy or less secure, rather less security, crucial, they would be done with a USB stick transfer." }, { "speaker": "diogo_monica", "time": "16:36", "start": 996.09, "text": "That's right. And so in one way, it's one of, its major advantages, but also one of its major weaknesses. It is one of the major advantages in the sense that you don't need to trust a lot of third parties, so you limit the number of third parties that you need to trust, and by doing everything manually, you are removing, again, eliminating, Aspects around printers and around internet connectivity and so on and so forth that you'd have to care otherwise. However, it's also its big, biggest weakness because it's inherently a manual process, and it turns out that it's a lot more likely for you to, To incorrectly write, a Bitcoin private key or incorrectly store a Bitcoin private key or manually do an error while following your checklist than it is for a machine And so this is part of the reason why institutions can't really rely on cold storage like, Glacier and manual processes like Glacier, because humans make a lot of mistakes. In fact, if you think about the, the profession in the United States that whose job is to follow checklists and that lives depend on it are surgeons, and surgeons constantly make mistakes. And, we have, hundreds of thousands of deaths in the United States because of surgical mistakes where a surgeon simply skips one of the steps on the checklist or, believes that they actually have done that step And, just move forward without actually doing it. And that's the same thing for, for Bitcoin or any kind of key generation, there should be no humans that are dependent on for the protocol to be successful" }, { "speaker": "stephan", "time": "18:03", "start": 1083.16, "text": "Fantastic. And Glacier also has a very clearly defined software stack, and it is trying to use well-known, well- audited hardware-- oh, sorry, software in this case. And it's limiting to Ubuntu, Bitcoin Core, and then its own custom thing called Glacier Script. Can you tell us a little bit about that?" }, { "speaker": "diogo_monica", "time": "18:22", "start": 1102.08, "text": "Absolutely. So the idea is to try to depend on- On, on the software stack that is known, that is audited, that is, very, frequently updated and for which all of these, patches and potential vulnerabilities are backported, and that the majority or a lot of people use, and therefore there's a little bit of a Of safety and mass there, because if it's a consumer product that a lot of people use, such as an iPhone, there's a lot of attention into breaking it and, there's also a lot of attention into patching it. And so the, the, the minimal, The minimal software stack was an operating system, was the actual Bitcoin code, so key generation, tracking, signing, so on and so forth, to which we, we use Bitcoin Core, and then Glacier Script, think of it as the glue that connects all these things together That generates QR codes to be scanned because these laptops never connect to the internet, so you, to communicate any transaction to an online computer, you scan a QR code that your offline laptop generates. So all these things are just part of Glacier Script, and Glacier Script really combines the glue to To call these signing functions to ensure the transactions are being correctly formatted, that calls the Bitcoin core with the right parameters, that does estimation fees, that, et cetera, et cetera." }, { "speaker": "stephan", "time": "19:32", "start": 1172.39, "text": "Right. And the other component I found really interesting, and this might be something for listeners to take away as well, is this idea of correctness verification using duplicate environments. And so, can you talk us through what is that risk and how is Glacier helping an individual get around that?" }, { "speaker": "diogo_monica", "time": "19:50", "start": 1190.2, "text": "So the idea is that you- You would obtain the same information from multiple sources, and by doing so, you're not vulnerable to a single source being compromised. So a good example of it is, imagine that you're downloading Bitcoin Core If you're downloading it from one central repository and you're verifying, just the hash that Bitcoin Core has to validate that the package that you've received locally is the same package and has the same integrity and it has the same- The same hash, secure hash function that the Bitcoin core package that was stored on the server, then you'd obtain that hash from two different sources. The advantage there is that even if the website from which you're consuming this hash was compromised and changed, both websites now would have to be compromised for you to fall victim to something like this. And so that's part of the concept is always, as much as we can, never depend on a single source of information." }, { "speaker": "stephan", "time": "20:38", "start": 1237.57, "text": "Right. Yeah. And, it's also very much that consideration around things like, so for example, there's that Ian Coleman website where you can generate, the bip thirty-nine seed and so on. So the idea is that you would try to verify that source, copy it down and then generate it on the offline computer that is then quarantined and never again touches the internet, component to it so, yeah, I think it might be good to just maybe talk through just at a high level. Obviously, we can't talk through every little step in detail, but if we could just sort of talk through at a high level, what are the broad steps, for Glacier Protocol, at the start, you're prepping the hardware, wh-what does that entail?" }, { "speaker": "diogo_monica", "time": "21:16", "start": 1276.34, "text": "Right. So the, the, at a very high level, the protocol takes you through the preconditions that you need to be successful at generating keys and at, doing cold storage using Glacier. protocol, and that means buying, different computers, buying USB keys, buying the dice, all of these different aspects that you need to be set up and all the things that you need to purchase so you're ready to execute the protocol Then, you were walked through all of the different aspects and security considerations of how to obtain the operating system, how to obtain the code, how to check the signatures and the validation that the code that you're deploying on this laptop is a correct one, how to prepare the hardware itself, so taking the cards and making sure that it's always disconnected from the internet Internet and how to move operating systems, how to boot the operating systems, so on and so forth. And then at high level, then there's, three big components. One of them is how do you generate new keys and how do you deposit Bitcoin into those keys? And then there's the withdrawal process, which is how do you securely bring information from the blockchain to, to the eternally quarantined hardware and how to use Glacier Script to sign UTXOs and move Bitcoin. And then finally, the maintenance protocol of how do you actually constantly verify all these protocols? Are being followed, your backups, updating code, so on and so forth. So at this high level, preparation, generation, the deposit aspects, the withdrawal aspects, and then the ongoing maintenance of the cold storage solution" }, { "speaker": "stephan", "time": "22:39", "start": 1359.35, "text": "Fantastic. And also, I think another interesting part is around, in the setup process or just in general, though, there is this whole concept of trying to block side channels. So can you tell us a little, a bit about that?" }, { "speaker": "diogo_monica", "time": "22:52", "start": 1371.76, "text": "A side channel attack is an attack in which an attacker that has the ability of seeing the electromagnetic waves Or just the computation of keys of a computer. So the, when you're computing a, an RSA key or doing a signature operation, for example, your computer does very distinct operations, some of which actually- require more energy than others, and the fact that it requires more energy actually emits, electromagnetic radiation that an attacker with very specific hardware might be able to pick up and then deduce what the private key is. So imagine that there's a key that is a zero, the computer will do less, Of a calculus with that zero, but then there's a one, and the computer would generate and consume more energy electricity because it would have more computation to do, and therefore an attacker could actually discern that the pattern was zero one And so that's effectively the high level view of, what a side channel attack, could look like. So the idea here is that you have to mitigate as many side, side channels channels as, as, as you can. And a lot of them are already mitigated from the fact that you're doing, you have a totally quarantine hardware, completely disconnected from the internet, you're in a room that, nobody knows that you're about to generate or nobody knows that you're about to see Sign or do a signature at that time, and therefore they can't be there to actually do the, the, the recording of the electromagnetic radiation that would allow them to recompute the key. So it's a little bit of an extreme thought, but we wanted to make sure that it was there for people to have that as a consideration Because there's all these sorts of aspects, around computation, around private keys and cryptography that aren't usually focused on, but that could actually have disastrous outcomes, such as private key leakage. In fact, a fun story was, before they beca-became a client of Anchorage, there was a, there was a client of ours that was doing self custody. And so what they had was this process where every time they wanted to do a Bitcoin transaction, they flew around the United States, they collected different USB keys from different banks, and then they convened on a random hotel that was randomly chosen. They would actually book a room, and then when they checked in, they would actually switch the room that was booked to make sure that it couldn't be pre-bucked, and then We had this, this, portable Faraday tent that they would do transactions inside of. And that Faraday tent and all of this was exactly because they wanted to be protected against potential side channels and against potential bugging of the actual hotel rooms where they were gonna be doing transactions because they were afraid of these attacks. So that's, an interesting consideration. It's a very extreme consideration, at least at, at the level of that client and the amounts of assets that they had, but it was, it's a thought and it's, it's a real issue. And has to be considered and should be taken into account." }, { "speaker": "stephan", "time": "25:33", "start": 1533.26, "text": "Yeah, that's a really good story actually, and that brings to mind this other idea that, so typically for the higher level security, we're looking at multi-signature, and one component around multi-signature depends on the way it's constructed, right? So if they are using, PSBT and they're doing it in such a way that not all signatories need to be in the same place at the same time, right? It may be taking a PSBT, and partially- signing it until it's ready for broadcasting. what's the thought there?" }, { "speaker": "diogo_monica", "time": "26:08", "start": 1567.75, "text": "So in general, multi-sig is obviously the ability of having different keys Having to collaborate for a transaction to be valid, right? That's the, the overall, the overall purpose. In, in, in Glacier itself, it's supported, there's multi-sig support that would allow you to effectively have different keys stored in different locations, and the idea there is that if your home is compromised and the keys inside of USB key In a way that it's encrypted or inside of a safety deposit box, the theft of that private, of that private key doesn't actually compromise your funds because they would also have to guess or have to steal From the other remaining two or three safe deposit boxes to actually get a quorum to be able to, to move the assets themselves. So that's by and large, obviously, what, what multisig is providing. I guess the idea there is that what you're trading off is you're trading off the, the difficulty and the time that it takes for someone to go through this process, especially if you consider Glacier Protocol targeted towards individuals for, security. And so it's, it's a very extreme version of it, and also has downsides, especially if you can't follow the maintenance protocol and you're not constantly validating that the multisig keys are still, are still all available. Just because you have a USB key inside of a seven thousand box, this doesn't mean that the key is still, usable, right? And so the USB key might have died, the key might not be usable. There's a lot of reasons as to why this, this won't be the case. And so it really adds a lot of burden in maintenance That is too much for an individual, but, that, that is required for institutions. So multi-institutions definitely require effectively quorum approvals So the goal is that when you are an individual, you want, by definition of being an individual, you want by yourself to be able to move your funds. And some people want to actually be locked out of the access of their own funds, but individuals, individuals usually don't want that But institutions, on the other hand, have that as a requirement. There should be no single point of failure. There should be no single human that can abscond with funds or whose loss or disappearance would actually cause, just data loss or loss of, of cryptocurrencies, right? And we've actually seen this in the media, where, where the CEO of a company that was an exchange actually, passed away or- has been claimed to pass away and, he had all of the keys and therefore the keys weren't longer available. So not only business continuity is important, but you also have to consider, quorum, and the fact that no individual should have, single access to the assets themselves." }, { "speaker": "stephan", "time": "28:41", "start": 1720.67, "text": "Fantastic. so just going back to the process then of Glacier Protocol and when we are doing the setup, so let's say the person is doing a deposit and first they're doing a test deposit and a withdrawal. And so this is one of those interesting points where the Glacier Protocol actually does use address reuse, but it's a security trade-off made, rather a privacy trade-off made for the sake of making, giving comfort that you- really can spend from this address. Can you talk to that a little bit?" }, { "speaker": "diogo_monica", "time": "29:11", "start": 1750.91, "text": "Absolutely. So it's a privacy trade-off in the sense that if somebody knows the pattern, then they can identify what your, your address is or what protocol you've been following, if there's a pattern of actually micro-transactions. People know that that is actually an address that is about to be funded and that is stored in a certain way. In terms of, in terms of the assurance that it gives you is obviously gives you the assurance that you've been able to both deposit and withdraw from That address, and so from a cryptographic perspective, there's obviously, especially for Bitcoin, this idea that you should always generate new keys and your TXs should never actually come back They should never reuse the keys themselves. So there's a little bit of an aspect there from cryptographic guarantee, the fact if a key is only used once, once is better, because of, potential nonce reuses and side channel attacks and all of these issues. It's, it's ideal that you don't operate on the same key Many, many times. But in that case, I do feel like the majority of the goal is to know that you haven't done anything wrong, because again, it's a human following a checklist. And, if it's a human following the checklist, we know that humans make a lot of mistakes following checklists. And so it really gives you higher confidence that you haven't followed, that you haven't done any mistakes on the deposit and on the key generation side because you've been able to successfully use that key. and so after you do the micro deposits and the, the micro withdrawals, then you can be trust-- you can trust the process And hopefully, that you've actually generated something that is, that, that will be able to be used. Well, one interesting thing though is that, again, this is a non-sophisticated individual So a sophisticated individual in a company like Anchorage can actually verify that the keys have been correctly generated without actually having to do micro deposits and without actually having to do on-chain transactions that, require a key reuse And require, obviously paying, paying fees and, require this kind of like back and forth of the key generation itself, because if you know that the private key has been correctly generated and you've been actually able to do a signature, And verify that the signature was correct, then you'd know that the key material is correctly generated, that the key is a valid ECDSA key, all of these, these different aspects. You don't necessarily need to send it to the blockchain as a transaction Action to know that it will be accepted at the liquidity. And so there's, again, yet another trade-off between being an individual and being an institution in an individual custody solution and an, an institutional custody solution." }, { "speaker": "stephan", "time": "31:32", "start": 1892.43, "text": "Fantastic. and with, for example, with a withdrawal, as I was reading through the process, I saw essentially Glacier Protocol requires you, you just use your one address, and what you would do is go and search that address on a block explorer, such as, say, blockchain dot info or blockstream dot info, and, going from That you would include, I think, the TXID, and then Glacier script would automatically include all UTXOs associated to that TXID. Can you talk through that process a little bit?" }, { "speaker": "diogo_monica", "time": "32:02", "start": 1922.14, "text": "Yeah, so the idea is that when you wanna sign a Bitcoin transaction, you need information from the blockchain, right? Because you need to actually, Number one, you need to know the fees, but there's all this information that you need to have from, from the blockchain to actually be able to compute the transaction itself. And so this is basically a way, and it's part of the, the protocol, A very non-usable part of a protocol is the fact that you always have to go from an online computer and have to actually go to the block explorer, you have to actually access this information on your own, and then you have to put it on the glacier script that is on the offline computer. We have to move these, this information over and type it in into your computer itself to inform what it should be signing and what are the parameters that it should be signing itself. And so that's kind of like the high level view over what is happening in that step." }, { "speaker": "stephan", "time": "32:48", "start": 1967.54, "text": "Got it. Yeah. And also, there's a different considerations here around multi-signature in terms of the distributed custody considerations for Glacier. So it's, so it's saying that, in the self-custody case, you might have, one key at home and three in safe deposits or- Private vaults or etcetera, but in a distributed custody case, you might go for a, a five keys setup, and you might have, just in case the, the, another person that you're trusting with one of your keys, maybe they're not protecting it well enough against theft or loss. So can you talk to that trade-off around deciding how many keys that you should use?" }, { "speaker": "diogo_monica", "time": "33:25", "start": 2005.19, "text": "So i-i-in general, the, the trade-off is pretty interesting because if you're an individual, you have two competing priorities. One is safety, but the other one It really is estate planning, right? It is if you pass away, can somebody else access your keys? And so these two things are a little bit at odds in terms of, safety and the fact that you have other individuals Individuals that are on their own actually can access your, your, your devices. So the easiest way is obviously imagine that you leave a private key, unencrypted private key with all of your Bitcoin in a USB key, and you tell your partner that, hey, if I pass away, this is the thing that you need to access, right? So in this moment, anyone can access it, anyone that compromises your house can steal your private key. Private key, but it's also very easy to do estate planning and for your partner to actually access the, this key to be able to sell it or in case you no longer remember the passphrase or anything like that And so now, unfortunately, the safety of this protocol isn't sufficient, and so now you go down to the path of selecting multiple, holders of the actual distributed custody setup. So instead of doing multisig For yourself, so two different keys that have to be compromised, but both of them are accessible by you. Now you're in a multisig setting where you're actually creating a form system so that it requires, for example, two out of three, two individuals out of three individuals or Two keys out of three keys have to collaborate to actually allow access to the private key itself. But then the problem, and the trade-off that you're describing is really, how many keys do you have access to? And do you want to lock yourself from accessing your own Bitcoin? Because you can do it, right? Imagine that you have a two out of three, and you have three parties, that have each, each have their own key So that's great because if you pass away, then two other parties on their own can actually move over your Bitcoin. The unfortunate nature of that is that now you're vulnerable to theft or loss of the two keys independently of your own security mechanisms. In your own protocol, now is actually leading to cause, Bitcoin loss because you yourself don't have the ability of going back on chain and recovering your Bitcoin key. So this is something that is-- it has to be very tailored for each individual and each situation, and really tailored for each organization. So part of what we do is we obviously help our clients make sure that they're doing the right trade-offs and having the right quorums. Is it a five out of seven? Is it a, a three out of five, depending on the amount of assets that they have, depending on the company size, depending on the- situation, is it an internal person that has or internal employees that have all the keys, or is it an external law firm that has access to a few of them and has a quorum? So all these things are trade-offs and they're really, dependent on the individual situation, and it's one of the things that we advise our clients. It's doing. And so that's, that's kind of like the general trade-off space of the safety aspect of having multiple holders of the keys and obviously the business continuity or in the case of the individual estate planning of, do you still have access to your keys? With somebody else's incompetence." }, { "speaker": "stephan", "time": "36:21", "start": 2180.56, "text": "Excellent. And now, let's talk a little bit around the maintenance protocol aspects of it. So part of this, you know, keeping your keys secure is also periodically checking them and periodically just making sure there haven't been any, I don't know, updates or whatever to either Glacier Protocol or maybe updates on Bitcoin. Can you talk to that maintenance process a little bit?" }, { "speaker": "diogo_monica", "time": "36:42", "start": 2201.75, "text": "Yeah, so at a core, the maintenance protocol is, i-is, is- It's twofold. One of them is the maintenance of the actual operating system, the software, and all of these different components that are required for you to make sure that you still have access to your Bitcoin and you can still operate So that's like the elements of hardware, is the laptop still working? Are the USB keys still functional? So on and so forth. So that's like the update mechanism, software, operating system, and kind of like the operation So component of it. The second thing, and it's actually the most critical one, is the private keys themselves. Are they still accessible? Are they still usable? And in fact, this is, this is the biggest issue with all these protocols, is the fact that people get- get lazy and people don't really follow their own maintenance protocol, protocols because they are painful to follow the, these requirements every quarter or every month or for institutions that have large amounts, even every day. You should be able to validate that the keys are still there and that they still exist. And so the, the process, the, the problem with that is that if you have a process that requires human intervention, if you have a process that to validate that the private keys still usable requires a human to go and do an operation and access the private key, then you're in trouble, because a large majority of the advantage of having one of these self-custody protocols and having Glacier protocol is the fact that, ninety-nine percent of the time, these things aren't accessible by humans, and so it's, it's really interesting because people don't want to expose their keys, but they want to make sure that the keys are still usable And, and again, if you're doing self-custody, and if the way that you're testing this is just loading the keys in a laptop and testing them out, then again, you go back into the situation where there's manual error, you have to access The keys and therefore in a way you're compromising the cold storage component itself. So that's actually the place where people fail the most, is this aspect of business continuity and not really the operational maintenance protocol, but really the key private key access protocol where they don't follow regular scheduled audits. Every quarter or so on, that, that allows them to know that they still have access to all these keys. And the, these things are just hard. there's Bitroot, there's Bitroot on the computers, there's Bitroot on the USB keys, on the private keys themselves And so it's, it's, it's really hard to, to keep on top of this, and it's why you have people that are specialized in doing it. So this is enough for an individual, but it's really not, not usually enough for an individual Institution." }, { "speaker": "stephan", "time": "39:00", "start": 2339.7, "text": "Fantastic. So, yeah, look, I think we've, we've spoken through, I guess, Glacier Protocol more for an individual or maybe for like a small family, maybe it makes sense for them. What does it take to take it to that next level? Like, what, how do you go above Glacier to the level that an institution needs? And what are some of the key differences between Glacier for, you know, individuals versus institutions?" }, { "speaker": "diogo_monica", "time": "39:21", "start": 2360.63, "text": "Absolutely. The first one is, is the requirements. I think Bitcoin grew up in, mostly Retail world, right? Individuals holding Bitcoin, and the necessity of an individual, especially in a world where Bitcoin was the only, the only cryptocurrency in town, were, were very low. People were essentially, by and large, buying and holding. And when they- were trading, they were trading on the very few exchanges that they existed. But institutions are just different, animals altogether. Institutions have this competing priority where they have to meet their fiduciary obligations, and some of them want to take advantage of the high volatility of the space, but the current protocols that they have and the cold storage itself isn't conducive to doing so. Because the goal of cold storage is to never have a human access a key or do it as infrequently as possible, but if you have to access it every day, because you're doing transactions every day, then that just defeats the whole purpose So the first things that, that are different are an institution needs fast access to their funds, and some institutions don't want to trade frequently, but even them, when they do trade, imagine that you trade say in six months Because there's, there's Bitcoin goes up fifteen percent or down fifteen percent, and you wanna take advantage of that, it can't take you forty-eight hours, twenty-four or forty-eight hours to access your funds Because at that point, Bitcoin might be down fifty percent more, or hopefully is up fifty percent more, and in which case it helped you. But by and large, you wanna trade on your instincts when you wanna access them. And so that's something that institutions want. They want fast access to their funds. And this doesn't need me-- This isn't, isn't, isn't only true for institutions that require many transactions that are doing daily transactions That are actively traders. This is also true for buy and hold, buy, buy and hold institutions that sell, once in a while, they sell once a year, 'cause they do want, when they do want access They want fast access. The second component is this, this component that we talked about around quorums and around no single point of failure. Institutions can't tolerate the, the unknown around our my- My keys still, still, still there? Are my keys still available? do my keys still exist? Is the custodian or the exchange running a fractional reserve? So there's the need from institutions to really have very high confidence from a perspective of the existence of the keys and whether the keys are still usable or not. Plus, there's also, issues with having an institution, which is institutions have a lot more turnover of employee base. And if what you're doing is a cold storage process where specific humans are necessary to actually run these protocols, then every time one of them leaves, you effectively have to re- Do the whole thing again. And so Anchorage solves, a lot of these issues and allows institutions to have the best, best of both worlds, best of cold storage, so the, gapping component and no accessibility, but also the fast access to funds, That, that they require. And then the final thing that I would say is that in a non Bitcoin maximalist world, so in, in a world where Bitcoin is, isn't the only cryptocurrency, in, in the world, we're actually seeing that all of these new protocols that are coming out Such as Cosmos, and Tezos, and Maker, all of them require you to use these keys actively, right? The, even if you're not withdrawing or depositing Maker, you still have to do governance decisions, you have to vote on Maker. in, Tesos, you actually have to have a baker which actively participates with fees to claim rewards or Cosmos. Cosmos also is a, a, a proof of stake, And network where it's no longer proof of work, the keys are being used and the validators are doing active participation, and if they actually do something wrong on the online use of this key, there's actually a- Asset loss and clients lose a percentage of their assets because they get tombstoned and malicious things can happen that cause them, asset loss. And so we just change dramatically what institutions need and what, individuals need. And so an institutional solution has to account for all these issues" }, { "speaker": "stephan", "time": "43:11", "start": 2591.25, "text": "Right. and what about other things like internal controls that, corporate or an institution might want to put in place? a-and I think you were getting to some of this with this idea of, no single point of failure, but what are some examples that they could look at using or perhaps that Anchorage is using? Only, obviously, only those things you're willing to share, obviously?" }, { "speaker": "diogo_monica", "time": "43:35", "start": 2615.15, "text": "Yeah. So internal policies are definitely having the ability of doing different policies for different assets, for different- amounts, subdividing them, and very quickly be able to edit these policies in a safe manner is incredibly important for our clients. If you think about multisig, it, it's multisig withdrawal for the use of a, a Bitcoin key But your custodian should also have the same kind of abilities and the same kind of quorum for adding a user or removing a user. So all of these operations need to be secure operations And so what you end up having is there are some custodians out there that allow you or force you to have multiple approvers for withdrawals, but then anyone can add new users. And so it ends up, it, it ends up being this nonsense security model where you can actually add new users with a single user administrator permission, but then the transfer of value needs multiple approvers, but if you can add as many approvers as you want, it ends up being useless. So there's aspects like that that are very much necessary, around the policy generation and controls. And then obviously the other thing that I didn't mention is, is the actual aspects around regulatory, clarity and governance, right? So Anchorage is a qualified custodian. We have, South Dakota Trust Charter, and, Anchorage is also going through the process of having audits and Anchorage- As insurance. So there's all these different things in different check boxes that institutions want to see that for an individual isn't, isn't as, not as important or not important at" }, { "speaker": "stephan", "time": "44:58", "start": 2697.91, "text": "all. Yeah. and how much of that has been an educational journey as well for your clients as well? So they may be coming from a world where they're used to a typical ERP software system where you can easily provision access and de-provision access from, staff member, but now they've got to come and change that into, now we're living in a Bitcoin- Bitcoin world, it's not so easy to just, you know, give access in this kind of multi-signature setup." }, { "speaker": "diogo_monica", "time": "45:25", "start": 2724.65, "text": "It, it's been interesting because the, the people that come to us already come to us because Anchorage has the, the best reputation from a technology and security perspective and really as the safest custodian. And so in a way, they're already pre-selecting themselves for caring about the security of their assets. but, but you're right that i-in Bitcoin, it's very different to come from a traditional asset class to a bearer instrument where there's a hundred percent loss and there's no clawback if a key gets stolen or compromised. And so it's, it's a very different world. we don't typically do that much education because it turns out that investors are already sophisticated, and if you're looking for a custodian, you already know they're investing cryptocurrencies, and you've already at least heard that the custodian is the first thing you have to choose, and that the first thing you have to care about is security Security, right? And so it's a little bit of a self-selecting, process where people that talk to us are already familiar with the issues, and then they're just a matter of us explaining how we're solving these issues and how we go above and beyond, than everything else that is out there in terms of security features and in terms of the product features that we provide to ensure said security." }, { "speaker": "stephan", "time": "46:28", "start": 2788.36, "text": "Got it. And with the way the Anchorage solution is set up, how do the customers-- so let's say I've got some listeners who are thinking about whether they wanna go with Anchorage, what are some of the ways that they would interact with Anchorage? Is it through like a web interface or what, what are the main ways that they would, interact with it, while still having their own, control over the system but still leveraging Anchorage security?" }, { "speaker": "diogo_monica", "time": "46:54", "start": 2813.98, "text": "Absolutely. So they would interact through their mobile devices and through the web portal exactly how- How you'd expect, to interact with in a traditional system. However, the things that are happening in those applications are just fundamentally different. And in fact, what Anchorage prides itself on doing is we have this security model where we require hardware on the client side and hardware keys, keys that never leave hardware on the client side to sign transactions And then those transactions are only unlocked inside of hardware on the actual Anchorage side. So Anchorage runs these hardware security modules, which are purposely built devices that are made to create keys And safe-keep them. And what we further do is we run the, the policy engine, the thing that verifies the policies, whether Joe and Jane actually signed this transaction, they also run inside of this protected hardware. And so the surface of attack is from hardware on our side to hardware on the client, and they would yet would even though we have this kind of security model and this kind of security, clients would interact with their normal devices and it would be a very usable experience And then they would use those devices to get to quorum and to give as many endorsements as are necessary and then as they have configured to be able to move transactions or do any operation in the system." }, { "speaker": "stephan", "time": "48:06", "start": 2885.55, "text": "Got it. So look, we're sort of coming to time. I wanna make sure, obviously respectful of your time, just if you've got any closing thoughts, any advice for listeners, maybe you could give us some, some advice for individuals and then some advice for institutions on how they can protect their bitcoins." }, { "speaker": "diogo_monica", "time": "48:20", "start": 2900.26, "text": "Absolutely. So in terms of, individuals, if you have large amounts And you are paranoid about the secu- your security, and rightly so. I think the Glacier protocol, if you go to glacierprotocol.org, is a really good resource for, even if nothing else, for you to think about a very high-end attacker model, an attacker model that really considers all the aspects that you should consider. If what you're doing is you're a normal consumer and you don't have that much Bitcoin, but you still wanna have a safe, a safe mechanism of, Of storing them. One thing that I usually tell people is, an iPhone is a very secure device. They could actually buy a cheap iPhone, or a second-hand iPhone and ensure that they have it offline and they have it kept somewhere safe. Use the biometric aspects of it, use the, the actual pin pads of it, and the fact that Apple has really good security to be able to download a really usable- usable, consumer wallet and where they would keep their assets themselves. They also have good mechanisms to back up. So that's really the two options that I usually tell people, depending on the amount of assets in their custody, depending on their technical competence and their paranoia. Very paranoid, very technical competent Glacier Protocol is the right thing, and then, low technical competence and not as much Bitcoin, I do think that an offline mode, device might be the actual right thing to do for, for an individual. In terms of institutions, the, the answer is pretty easy, for an institution, I think, Anchorage dot com is really the best solution there, and, obviously having a usable mechanism that allows you to have accessible, Ability to use your assets allows you to do active participation, participate in, baking and generating yield in Tezos, voting on, on Maker, all of these other aspects that people aren't really considering with Bitcoin, but they're already a necessity and something that, that investors care about, meeting their fiduciary obligations. I think Anchorage- Really is your best" }, { "speaker": "stephan", "time": "50:11", "start": 3011.0, "text": "option. Fantastic. So look, where can listeners find you online?" }, { "speaker": "diogo_monica", "time": "50:15", "start": 3014.82, "text": "So at Diogo Monica on Twitter, pretty easy. And in terms of Anchorage, find us at Anchorage dot com." }, { "speaker": "stephan", "time": "50:20", "start": 3020.19, "text": "Fantastic. Well, thank you again for joining me, Diogo. Thank you so much for having me. I hope you found that interesting. It's well worth checking out the Glacier Protocol just to understand a little bit further around what are some of the security considerations, even if you're not necessarily going to execute the protocol yourself. And also obviously if you're interested, check out Anchorage, the link will be in the show notes as well. Show notes, transcript, and the link to subscribe to my podcast are on my website, stephanelivera dot com. Make sure you subscribe using a podcast app so you get the episodes coming in this coming series. Just a quick note I've heard about some conferences coming up, so Baltic Honey Badger in Riga is coming very soon, Lightning Conference in Berlin in October, I'm one of the MCs for that, and I'm also doing a talk at the Gold and Alternative Investments Conference in Sydney October 2019. That's it from me guys, thank you, and I'll see you in the citadels." } ] }