{ "episodeId": "SLP110", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "neil_woodfine": { "name": "Neil Woodfine", "role": "guest", "tag": "NEIL" } }, "segments": [ { "speaker": "stephan", "time": "00:08", "start": 8.49, "text": "Hi and welcome to the Stephan Livera podcast focused on Bitcoin and Austrian economics. Today for episode one hundred and ten, we've got Neil Woodfine from ClaveStone talking to us about the Cerberus protocol for business Bitcoin storage. But first, a message from the show sponsors. Look into Kraken, one of the world's leading Bitcoin exchanges. I've been really impressed with the way they operate. They're known for having a very strong focus on security with Kraken Security Labs. They are one of the longest standing Bitcoin exchanges and they've got a high quality platform offering 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 are providing best class accounting reconciliation and reporting services for cryptocurrency hedge funds, asset managers and fund administrators. Kraken have an OTC desk for those higher touch large block trades. They offer five fiat currencies and also offer margin and futures trading. To learn more and sign up, go to the Kraken link in the show notes. Next, if you're looking for ways to improve your setup with multi-signature, look into Unchained Capital. They're doing Bitcoin financial services And one of their products is a two of three keys multi-signature vault product, so you can use Trezor or Ledger, and you can distribute your keys, which helps protect you against that proverbial five dollar wrench attack. Unchained also offers Bitcoin collateralized loans, so you can get USD liquidity without selling your bitcoins. So while that loan is outstanding, your bitcoin is stored in a dedicated multi-signature address under collaborative custody with Unchained holding one of three keys, you hold a second key. And Unchained's independent third party key agent holding the third key. So to sign up, go to unchained dash capital dot com, there's a link in the show notes. So carrying on with the Bitcoin custody series, today my guest is Neil Woodfine. He is working at Blockstream, but for this interview, he's speaking in his capacity with Clavestone. So they're a business built around the idea of helping businesses secure their bitcoins using Cerberus protocol. Cerberus protocol is a multi-signature pro-protocol that It's designed to be less technically onerous to use and therefore more usable. so note, this episode is more relevant for businesses and perhaps for small families, but I think you'll still pick up a lot of insight into how this industry has worked with Bitcoin storage. So here's the interview. Neil, welcome back to the show. Hi Stefan, thanks for having me on. It's been, something like over 100 episodes, since I had you on, so, you're one of my first few. I think you're in like the first ten, I can't remember now." }, { "speaker": "neil_woodfine", "time": "02:57", "start": 177.18, "text": "Yeah, that was great. Thanks very much." }, { "speaker": "stephan", "time": "03:00", "start": 180.1, "text": "Yeah. So Neil, I know you're working on this concept, or well, I know you're working mainly at Blockstream, but I know you're also working on this Cerberus protocol and also Clavestone. So, can you just give us a bit of an overview, what is it and why was it written?" }, { "speaker": "neil_woodfine", "time": "03:19", "start": 198.71, "text": "so the Cerberus protocol was, or is a guide for businesses to set up their own Bitcoin self-storage. I think it's common knowledge for everybody that, hodlers, individuals, should be holding their own keys, not your own keys, not your, not your Bitcoin. it's something that everybody knows and talks about a lot. But for businesses, I think a lot of people seem to think that it's okay for them to be holding their funds with custodians, and that's partic- that's, especially for, things like funds and family offices, and people like- Court the, the, the, the regulatory requirements and how difficult, difficult it is for companies to do their own self-storage. Well, it is pretty damn difficult for individuals to store their own Bitcoin in general. So, yeah, the Cerberus Protocol is, is basically a, a guide for businesses to coordinate Self-storage of Bitcoin in, a simple, easy to use way. I think as well, like, with companies, they, they, they face a lot of very unique issues that don't apply to, individual Bitcoin storage. So," }, { "speaker": "neil_woodfine", "time": "04:41", "start": 281.41, "text": "With a company, the company itself can't hold the Bitcoin. If you're an individual holding Bitcoin, the, the ownership is very, very clear. You hold the keys, you decide when the payments getting sent, you decide what addresses the, the payments are getting sent to. But with a company, it's kind of like a virtual entity that's holding these bitcoins, and you-- the virt-- this virtual entity has to, use agents, generally employees or shareholders, to hold the, the, the keys on behalf of the company. And that kind of changes the dynamic, for, how this, this storage is executed. and another key difference is, now I know there's a lot of multisig options for, for individuals, but a company pretty much definitely has to use multisig, and if they're using multisig, you're involving multiple people. And multiple people when they're working together have to know how to coordinate. And right now, there's a lot of Bitcoin storage solutions, technical storage solutions, software, hardware, And it's great, like to an extent, some people might, might disagree with me on this, but, the technical side of Bitcoin storage has been solved. There are some really nice, really secure solutions on the market right now. They can definitely be improved, but they're working. But these, these solutions don't provide a business any kind of indication, any kind of instructions on how to coordinate certain things, such as like, how should you, generate your private keys? when you're receiving a payment from a third party, how should you be, like, let's say you've got three people involved in multisig, who's the person that's going to be providing that address, and how do they make sure that they, they haven't been compromised and they're, and they're- The, the, the person that's sending the Bitcoin, how do they know that this, this address comes from, the company that's asking for it? and then sending payments obviously, like, so who initiates that transaction? Who confirms it, and if they confirm it, what kind of checks are they doing to make sure that the transaction is legitimate? And like the cur-- the current solutions in the market right now are just like, okay, here's multisig, you all hold a key, go for it. And it's like, I think for anybody that's not a, a, a Bitcoin company or like has Bitcoin expertise within their team, it's a very big ask, and the-- and with-- without those kind of instructions, it's gonna be a lot-- they're gonna feel a lot more comfortable going With a custodian. and obviously, if they're going with custodians, it's, it's important to point out that like, there's a lot of professional custodians on the market right now. I think there was a big, there was a big boom kind of last year, in, in, in various different companies coming up with different custodial solutions, but most of them are kind of holding the keys on behalf of the companies, and, and perhaps they discovered that there was more de- demand for that. But the problem here is that if you're a company storing your Bitcoin with, with a custodian, you're not really reducing the risks, you're just pushing them off. To the custodian. Now, if the custodian is using multisig and, and they're using like physical vaults and stuff, that's great, but they have their own employees, their own agents which are carrying these private keys, and they're exposed to all of the exact same risks. and- To some extent, these custodians are actually, the risks are even, more concentrated because they have multiple different companies' funds held, within their own, within their multisig, within their, within their, their, their, their vaults. They have a small number of people holding very large numbers of funds, and that, that obviously poses extra risk. So If we end up in a situation like, let's say, five years from now, where Bitcoin becomes even more popular than it already is, and we have even more kind of institutional investors, we have a lot of companies, throwing, throwing their fiat at this, we could end up with a very, very fragile, ecosystem where there's a very large quantity of Bitcoin funds being held in a small number of centralized custodians, and I think it's very important that, Just regular companies, understand that this, this is a potential risk further down the line, and they need to also understand the benefits of distributing that control, having the, the keys themselves, in the same way that I think, individuals understand the, the, the benefits of that now." }, { "speaker": "stephan", "time": "09:31", "start": 571.36, "text": "Excellent. So what you're touching on, touching on there is this idea that there is both a local risk and a global risk, right? So of not holding the keys. And part of that, in some sense, is the ethos of Bitcoin that you should, you know, not your keys, not your coins, not just for individuals, but for businesses. And potentially for smaller businesses, it might be more feasible for them to do their own self-custody using a multi-signature protocol, such as, Cerberus protocol. So let's talk about who it's mainly intended for. As I understand, it's there for company, Bitcoin companies or companies who handle Bitcoin And is it mainly for technically unskilled users? That's wh-- is that, is that the idea? So it's" }, { "speaker": "neil_woodfine", "time": "10:20", "start": 619.88, "text": "specifically targeted at companies, not individuals. Like if you're an individual, don't even bother looking at this. however, it could technically be used by other groups, I think, such as like if you're a family investing in Bitcoin together or like a charity or, or, or some other kind of, group organization. it's intended for, long-term Bitcoin holdings, so a low frequency of transactions. some people might wanna say it's cold storage, I'm a bit hesitant to call it cold storage because I think that often comes with connotations such as like Pure air gapping, whereas we're using, for example, Trezors, which are, connected via USB, it's not, it's not genuine air gapping. So like, I'm, I'm not sure whether to call it cold storage, but it's certainly meant for somebody that's making a long-term investment, a company that's making a long-term invest-investment in Bitcoin and is only planning to make a transaction, perhaps at most, once a week, but hopefully a bit less than that." }, { "speaker": "stephan", "time": "11:26", "start": 685.81, "text": "And I think the next," }, { "speaker": "stephan", "time": "11:30", "start": 690.38, "text": "Just to motivate it for some listeners, maybe there are listeners out there and they're working with a small Bitcoin company and they're not using a very secure method of storing their bitcoins, right? And I think we've all heard some of these stories of Bitcoin companies, maybe some, some of them small, some of them large, and they're not necessarily using very secure methods of storage. Have you got any stories you can share with us, obviously without doxing the companies involved or the people involved, Of perhaps what we might call inadequate storage, given the, the amount of money being stored or the size or the type of that business." }, { "speaker": "neil_woodfine", "time": "12:07", "start": 727.43, "text": "Yeah. so I mean, like I've been working in the industry for quite some time now, And, throughout the last few years, I've heard some pretty shocking, scary stories of prominent Bitcoin companies, like well-known names, holding Bitcoin in, in, in ways that I wouldn't consider to be particularly secure, and like we're talking like, ledgers thrown in drawers kind of thing. Like, I think people think that the, the industry has, learnt its lessons and professionalized, but, I don't, personally, I'm not confident that that's, that's the case. and as well, like, you have to bear in mind, like, the, the driver behind Cerberus is to create some kind of formalized, A process around, Bitcoin storage that like the community has checked and we, we agree on. Not, nothing like that exists right now. So every single individual company is coming up with their own ad hoc solution. Now, if you're, if you're a Bitcoin specialist There's an argument that that's okay, like, even then, like, I think some of them will make mistakes, but for everybody else, like, any other company that doesn't have that expertise in the team, they need some kind of, standardized way of ho-- of holding the Bitcoin. Now, standardized as well, the- There's another risk that by standardizing Bitcoin storage, like we, in the Cerberus protocol, we're very explicit about where you should be storing your, your seed, seed phrases, where you should be storing your hardware wallets. By making that very, very explicit, there is the risk that, like It provides kind of a guidebook to, attackers to, to, to compromise the, the storage. But I think the alternative is much worse, where you get all of these, individual companies coming up on their own with their own solutions. They're not like experts in, in OpSec, they're not experts in, in, in Bitcoin, storage, cryptography, any of this. so I think it's important that we come up with something. That is standardized that anybody, anybody can follow, and it is, intended for-- I mean, I think you have to have a basic technical, understanding, like you need to be able to navigate around, like, Windows or a Mac, that's like the, the, the basic requirements, But like, it's, it's intended for people that like don't know how to do any coding, they perhaps have never really, engaged with Bitcoin very much in the past. I, it's, it's really, really, step by step, do this, do that. Like we even like- Kind of provide directions for, coordinating, booking a meeting with your, your fellow signatories. So like, it, it tries to leave nothing out, but at the same time, be extremely lean. So it doesn't provide a, a like, we took a lot of inspiration from the Glacier Protocol, which is a storage solution for individuals, it's very well respected, it's been used by a lot of people, it's been checked by a lot of the, the technical community in the past." }, { "speaker": "neil_woodfine", "time": "15:32", "start": 932.02, "text": "oh, sorry, I've lost my train of thought, damn it." }, { "speaker": "stephan", "time": "15:35", "start": 934.82, "text": "Yeah, so I mean, as it's been, you're making the point there that it's-- there are comparisons with the Glacia protocol, and so from my own reading of Glacia protocol and reading of Cerberus I notice that Cerberus has been really cut down and made a bit more lean for people, so it's not as, say, secure as Glacia, obviously. so Glacia makes, you know, very specific call-outs about all manner of things like side-channel attacks and, you know, verifying double E and so on, whereas I think- There is, and there is a fair point to be made around usability as well, right? So it can be difficult for a user when they try to go to a website and read the procedure, and then they're confronted with this massive, massive document, and they've got to read through the whole thing before they can even get started. It, it can be a bit confronting, whereas perhaps if you have set it up in a more lean way, they might actually use that protocol and actually go and use multisig as opposed to leaving the trezor in the drawer kind of thing or the ledger in a drawer approach to securing the company's assets, bitcoins. Exactly. So, yeah, I, I think it might be good to just talk through some of the main threats. So you were speaking before about how there is that principal-agent problem that any business or government even faces, right? what are some of the main threats that you could see in terms of ways a business might lose bitcoins by not securing it correctly?" }, { "speaker": "neil_woodfine", "time": "17:02", "start": 1022.47, "text": "So, you've got two, main kinds of threat from our perspective. You've got external threats, and these are pretty much the same as the, as the threats, experienced by individuals storing Bitcoin. So you've got hacks, physical theft, and like physical theft can take many different forms, like you could get mugged, your house could get broken into, your office could get broken into, You got, kidnapping and ransom, pretty horrible things, but they're already starting, like, Jimson Lock has got a really good record online of all of these, physical attacks on Bitcoin holders that are starting to happen now. you got blackmail, it's very difficult to detect, people can kind of like, be threatened and then start acting if they're, like, if they're on volition on, on compromising the Bitcoin storage. And then you got social engineering, which I think many, exchanges have experienced or at least- Claimed to have experienced, in the past few years. So they're the external threats, but with the company, you have like a whole unique set of threats that are internal. and that looks like inside jobs. So, you could have like, three signatories, and one of them could be compromised, you could be interested in taking the, the company's funds. but also like, Bitcoin's very new, the software, could still be improved in terms of its usability. there's a lot of room for error, and when you make an error in Bitcoin, like, that's it, you lost your Bitcoin. so you've also got like this kind of, what I would call a fat finger So sending the wrong amount, sending it to the wrong address, just pure, mistakes. You could-- as well, like there's a risk when you're receiving as well that you provide, an address that's wrong. and then another additional internal threat or problem that companies face is people leaving the company. Like, companies are fluid, like you can have shareholders selling their shares, you could have an employee who gets terminated for, whatever reason. and you could even have deaths within the company, which could cause a lot of headaches. and then, like I think there's two key problems to, to, to highlight, that are unique to companies. So for the external threats, it's not the business that's facing the threat, it's like, okay, like the business could lose its Bitcoin, but like These Bitcoin don't belong to the, the agents that are carrying the keys. So if I'm one of the signatories, and like, let's say I'm just like an employee, I'm not even a shareholder, I'm taking on physical risk on behalf of the company. And like that's, that's an unusual situation to be in. Like, perhaps if I'm threatened, I don't really have much incentive to, refuse any, any, any, any kind of requests. and then with regards to the internal threats, you also have, a unique situation where, you have plausible deniability. So the, the difference between, like, a hack and somebody just, or the, the, some signatories getting together and stealing the Bitcoin, like, you can't, can't really tell the difference. And so it gives- inside jobs, like, a higher risk of success, because there's a good chance they can get away with it, they can blame it. And I'm, I'm sure, I'm absolutely certain, we've already seen a number of these, within the industry already, exchanges quite regularly talk about getting hacked. like it could be in the future that we see some of these professional custodians also claiming to have been hacked, but actually it's just some of their internal employees, taking, taking the funds for themselves. And like, there's a Enforcement or anybody monitoring the blockchain, how do you, distinguish between, a hack and, and that inside job? Very difficult." }, { "speaker": "stephan", "time": "20:59", "start": 1258.84, "text": "Right. Yeah, great point, sir. let's talk also about insurance as well. So if you're a company, you may be looking at insurance for Bitcoin, and I know you wrote, some articles in relation to this. So what were some of your thoughts around the problems with insurance for Bitcoin storage?" }, { "speaker": "neil_woodfine", "time": "21:21", "start": 1280.73, "text": "so, just to be clear upfront, I'm not an insurance expert by any means. We did a little bit of research, to produce our article, so, I can only kind of talk from, from- From the research that we did there. but I'm, I'm very, very skeptical of any, companies that are claiming to have any serious, insurance, for any, any Bitcoin holdings or, or cryptocurrency in general. insuring Bitcoin poses a lot of risk for, insurance companies. generally they're looking at, three things. one is the, the, the value of the thing that they're insuring. then they're looking at what, what events they're insuring against, so like specific events that could, that could happen. and then the risk of those events happening, there's like three factors coming into play when they're, they're, they're deciding on the premiums. Now with Bitcoin, like, how, how do you define the value? Like, it's very difficult for an insurance company to know How much they're, they're insuring because Bitcoin's value is oscillating, it's very vol-- very volatile, it's moving, moving all over the place, so it's very difficult for them to get that value right. And then for the events, it's very difficult for them to be very specific about, the events that they're insuring against. Like we have the problem of, plausible deniability that I mentioned earlier. it makes fraud very, likely, for fraudulent insurance claims. Like insurance companies here, insuring cash, which essentially is what, what, what Bitcoin is, because it's very liquid, it's very easy to offload, it's very attractive as, as a kind of, insurance fraud option. I think that there's a, there was a really good, example of, a data breach. I can't remember the name of the company, but there was a data breach a few years ago, and they claimed, the company that had the insurance claimed for the insurance, but the insurance company refused because they described it as an act of war, because, there was indications that it was committed by Russian, government, government agents. So the, the company never got their, never got their payout. Now, like, yeah, like if you A Bitcoin insurance, if you're insuring, some Bitcoin holdings, you could like be looking at, a similar situation. And then the risk of things happening, there's just not enough data. Like right now, it looks like exchanges get hacked quite often, so that's gonna push the premiums very high, but it's very difficult for an insurance company to, to calculate those risks. And so like all these risk, all these difficulties have piled up, and the, the result is that you get some Bitcoin companies claiming to have insurance, but they, ridiculously, expensive fees, to, to get in on that insurance, or they're only insuring a very, very small portion of, the holdings that they're holding. So like, this may, may be out of date already, this is something, some research that we did back in February, but for example, Coinbase custody, they only-- so they say that it's an insured solution, but they're, they're only insuring their hot wallet, and the hot wallet only, accounts for two percent of their, their holdings. And Only ensuring their, their hot wallet, again, around two percent of their holdings. I think just, I think it was just yesterday, Knox Custody, a newly launched, custody service, claimed to have a hundred percent insurance. Now, like, I'd very much like to see their, their small print. I'm sure there's a lot of caveats to, to, to, what they're providing there. And then like as well, like, let's say they do ensure, just like, a thought experiment, let's say they ensure a hundred percent of, of the holdings, they're probably only gonna be able to provide you, the, US dollar amount. And like, when did they fix that US dollar amount? Was it like at the time of the theft or was it, at the time that they, they, they, they approved the, the insurance claim, you have like this, like time differential where you could be receiving a lot less than, than, What you originally insured. yeah. So there's a, there's a lot of like issues around it as well. You're gonna have to buy back those Bitcoin, if you contin- if you decide you wanna continue holding, and when you buy, buy back those Bitcoin, you're gonna be faced with, a lot of, slippage when you're trying to buy them back on the market. If you're, a large custodian that's lost a lot of funds, people are gonna know that there's gonna be this incoming demand, it may push the Because insurance is so difficult and so questionable, it's, it's even more important for companies to make sure that they have their Bitcoin storage Locked down in the same way that individuals recognize that they're not gonna get their Bitcoin insured and that they have to, make sure that the, the, the storage is, is, is in good shape." }, { "speaker": "stephan", "time": "26:25", "start": 1584.53, "text": "Yeah, a lot of good points there, Neil, and I think ultimately a lot of that is owing just to how early we are in Bitcoin. It may well be that, you know, if I asked you that same question ten, twenty years from now, maybe it would be a lot more mature then, and maybe by that stage, it would be more of a normal thing. But it, it may just be an aspect of the world is not quite used to Bitcoin yet, and so we just haven't, all the institutions haven't quite caught up, and, you know, that's just part of the Could I, could" }, { "speaker": "neil_woodfine", "time": "26:54", "start": 1614.33, "text": "I mention something on that though? Like, if you're looking to the future," }, { "speaker": "neil_woodfine", "time": "27:01", "start": 1620.53, "text": "the, the, there's a number of reasons why actually in the future, insurance may not even get that much more easy. Like, right now insurance companies are, insuring themselves through companies called reinsurers, which insure against like global catastrophes, things that, Are very, very difficult to predict, black swans, that kind of thing. And they're able to do that because they're backed up by government, these reinsurers are backed up by government organizations. So in the US, for example, the reinsurers are guaranteed by the FDIC, and they can basically print money to back up the reinsurers, who will then, make the, the insurers able to pay on their, on their, insurance claims." }, { "speaker": "neil_woodfine", "time": "27:46", "start": 1665.51, "text": "the problem with that is that with Bitcoin, if you're investing in Bitcoin, you're predicting or, speculating on certain things happening, You're, you're, you're, you're, you're, perhaps speculating on the death of fiat," }, { "speaker": "neil_woodfine", "time": "28:03", "start": 1683.12, "text": "central banking may become more difficult, and we could end up en-encountering some kind of, financial disaster. And i-in those kind of situations, like your insurance isn't going to be particularly useful. Your, the reinsurers aren't gonna be backed up as well as they are now by, government organizations. And like we, we're gonna be in this sound money paradigm where money is very difficult to, to come by, it becomes very, very scarce, or if it's lost, it's gonna be very difficult to, to get it back. so I'm kind of, I feel like in that kind of situation, premiums would be even higher, Yeah. so like, yeah, I, I mean, yeah, the, the industry's gonna mature for sure, but I, I, I think the entire insurance industry to some extent may have to, change to, to account for this, this new kind of, Bitcoin paradigm that we, we might be heading towards." }, { "speaker": "stephan", "time": "29:02", "start": 1742.26, "text": "Yeah, sure, fair enough. okay, so let's dive into the Cerberus protocol itself. So let's talk a bit about preparing and, what are some of the requirements that you need to get arranged?" }, { "speaker": "neil_woodfine", "time": "29:18", "start": 1758.04, "text": "yeah, so, first thing you gotta do is assemble your team. You gotta choose three trusted signatories at, at your, at your company. should be fairly easy, I think most companies have three people that they, they, they trust. yeah, so you gotta get them together, prime them for what the Cerberus protocol is. Ideally, everybody needs to, read through the protocol, although, We've taken the, decision to assign one person the major responsibility of, implementing the setup stage of the protocol, and we call that the, the master of ceremony, the MC. and the MC is, like, I think every company has at least one person who is more technically able than the, the rest of the team, and it's the MC's responsibility to, for example, procure a bunch of the equipment that's required, for example, the, the hardware wallets, We require a bunch of equipment from Amazon, to, to, to use during the setup ceremony." }, { "speaker": "neil_woodfine", "time": "30:23", "start": 1823.22, "text": "and that person is kind of absolutely has to be very familiar with the, the protocol and will be kind of directing the other, signatories during, during the setup ceremony. and then like other things that you need to do to begin with is, set up, prepare some physical storage. So, When you're setting up your, your, when you're generating your private keys, you're going to create some backups in the form of, seed phrases. you don't want to be storing them in the same place as your hardware wallets, that would be a terrible idea. So we recommend using, bank safe deposit boxes for that. And we have, some recommendations and protocol around that to make sure that they're not all stored, for example, at the same safe deposit box provider. they're stored under individual names So that, either the company that you work for can't go away and just claim all of the backups, and also the, the, SIF deposit box providers aren't aware that, these three, boxes are connected, and they can join the dots and, and, and, and recreate the wallet, Yeah, so I mean, like, we-- we don't explain all of this, these, design decisions within the protocol itself, but what we do is we backload all of that information into an appendix. So I think, like, for example, Glacia tries to explain everything as you're going, so you're like, you know, why you're doing these things. And we found that, that just like, it blots the, the protocol, it provides a lot of information that people are potentially not even that interested in, and we Ensure that people actually use the protocol because, like, that's gonna be more secure than them not using it." }, { "speaker": "neil_woodfine", "time": "32:13", "start": 1932.58, "text": "so yeah, and then, and then in terms of like other preparation, You're gonna need to get Electrum on a laptop, you're going to need to verify that your, Electrum install is genuine, and then, yeah, you're, you're gonna basically set a date for your ceremony, and everybody's gonna have to, get together for a key generation ceremony, and we've really kind of made it very formal, like, people gotta switch off their phones, they enter a room that has been kind of checked for, potential compromises, and like, we really get the signatory- To take it extremely seriously, that like, okay, this is the most sensitive time of the protocol, like these seeds that are being generated provide ac-- people access to only Future Bitcoin that you add to the wallet, so like, let's get this right. and, that, that part of the protocol hasn't been published yet, the setup ceremony, it's very, very close. and we, we should have it out within, a week or two. so yeah, I don't really wanna go into too much detail on that until that's, finalized. but the, the, the general theme is like, I think like, for example, a lot of people saw the Zcash setup" }, { "speaker": "neil_woodfine", "time": "33:28", "start": 2008.11, "text": "We're going for something a little bit like that." }, { "speaker": "stephan", "time": "33:32", "start": 2011.65, "text": "Got it. Okay, great. So I guess just summarizing in terms of the tools required, you need three trusted employees, and I presume then it's a, as I understand, it's a two out of three multi-signature setup. We would have three Trezor One's, the cheap, the cheaper hardware wallet device. you'd have three computers, and then beforehand the-- those three users or, employees have gone to set up safe deposit boxes Box, as the backup, location for their seed words for each of their respective devices, and then, yeah, so you would go through that, preparation and, the setup, process and" }, { "speaker": "stephan", "time": "34:14", "start": 2054.16, "text": "Right, so then let's talk a little bit about the, assuming now you've done the setup, what about- Things like transition of holders or a staff member leaves or is incapacitated, or, you know, you need to rotate in a new key, is that, that also covered inside the protocol?" }, { "speaker": "neil_woodfine", "time": "34:35", "start": 2074.83, "text": "Yeah. So, after the setup, the, the, the next sections are, receiving a transaction. I think a lot of people, often overlook receiving a transaction, how risky it is. you need to make sure that you're providing the correct address or you've gotta have a bit of redundancy there, a little bit of duplication using multiple- Different channels to provide that to, third parties. and then the next section would be making a transaction, which is, of course, very, very sensitive. Like you, you need to make sure that all the signatories are checking that, the transaction is genuinely in the interests of the company, it was intended, the amount is correct, the third party's address is correct, that kind of thing. so th-those two sections, and then, then we get into, sections such as the, the replacement of a key. So you've got two, two different situations here. One is where perhaps one of the keys, the hardware wallets has failed. okay, so now we need to replace one of the hardware wallets. That's very different to, okay, one of, one of the employees has quit and like he's a rogue agent now and he holds one of these very sen- very, very sensitive keys. Like, how do we How do we, how do we deal with this, this situation? That's very, very different from like hardware wallet breaking. So yeah, we, we've got, protocol around that, okay, like let's, set up a new key, let's get the other two remaining signatories to very, very quickly, transfer the, the funds to this, this new, new wallet that we've, we've, we've generated, and like that also will have, Secure setup, around it. but like, yeah, it's-- these things are really important, they're not, they're not codified anywhere. Right now, people are just kind of making up as they go along. So it's important to make sure that there's, there's some, some standards around this." }, { "speaker": "stephan", "time": "36:27", "start": 2187.1, "text": "Yeah, gotcha. and you mentioned earlier around receipt or the first receive address, let's say, and just in general the process of receiving address. So, are there any guidance, is there any guidance you can provide there around good practice for receiving into that two of three multi-signature set? For example, is it possible to verify the incoming? Address on the device, that kind of thing." }, { "speaker": "neil_woodfine", "time": "36:56", "start": 2216.08, "text": "right, so, Trezor provides, some, great solutions for making sure that you, you check your, address on the device before you, and not just on your screen, which reduces the, the, the, potential for compromises. obviously, if you're getting socially engineered, that, that could pose a problem. So, it's important to make sure that you're checking, The address that you're receiving from your third party, on multiple channels and ideally with multiple people. again though, like this is, this part of the, protocol is, still under development, so I wouldn't really want to give too many specifics on that until it's, until it's finalized." }, { "speaker": "stephan", "time": "37:39", "start": 2259.07, "text": "Gotcha. Alright, what about any procedures in terms of shutting it down, I guess? Is, is there anything there that would, stick out to the user or things that they might not have thought of before?" }, { "speaker": "neil_woodfine", "time": "37:54", "start": 2274.34, "text": "Shutting the, the, the storage down isn't something that we'd considered adding to the protocol, yeah. I think it would just be as simple as, coordinating a, a transaction from the three signatories to, I mean, they're gonna be sending the Bitcoin somewhere, right? to whatever new storage they decide to use, or to an exchange to liquidate or whatever. But like the, the transaction part of the protocol should cover, situations such as that, such as emptying the wallet, that's not, that, that's not a big concern." }, { "speaker": "stephan", "time": "38:32", "start": 2311.73, "text": "Got it. Yeah, fair enough. okay. And I think it also might be interesting to talk about Segregation of the funds. So typically, you know, an individual might be thinking, \"Okay, I've got my cold storage, which is more secure setup, and then I've got a day-to-day balance on my phone or whatever, right?\" Is there anything, is there any guidance there for a business who is using Cerberus Protocol how they might segregate the funds between, say, the hot wallet and then their Cerberus storage? maybe in a future version." }, { "speaker": "neil_woodfine", "time": "39:04", "start": 2344.19, "text": "I think, right now the most important thing is to teach people Store Bitcoin long term in a secure manner and like building that side, this is a side project for us, we all have day jobs, like building that, that, that protocol around the, the safe storage is, is a big enough task as it is. Yeah. So we're gonna get that right first. We've already had like, A number of, recommendations and feedback from, people that we know working in the industry, for example, they've suggested mixing hardware wallets like the, the The, the problem with like suggestions like that is it, it, it significantly increases the complexity of the protocol, and the bigger it gets, the, the more it's going to put off potential users, the less it's going to get used, the less Secure Bitcoin storage is going to be, be out there. So, yeah, we're, we're gonna focus on that, that, that kind of core model first, and then we can think about, maybe doing extensions, separate versions, that kind of thing. Another thing to, to, actually I haven't mentioned so far, is that we've taken the decision to make sure that we don't provide any, any choices to the users. So it's like I think the Glacier Protocol, in some sections, is like, okay, well, you can do it like this, or if you want to like add a bit of extra security, you can do it like that. We want to avoid all of that, and it's just like, this is the most standard way of storing Bitcoin in a multisig, a multisig manner for a company, because I think People shouldn't be making subjective judgments like that. Somebody, especially companies that aren't familiar with Bitcoin, they should," }, { "speaker": "neil_woodfine", "time": "40:47", "start": 2446.6, "text": "just kind of be told what to do, and I think most companies would actually prefer that. so like, this is open source, right? Anybody can use it. We, we haven't copyrighted it or anything like that. so, if people really feel like there's a need for something with, mixed hardware wallets or, it needs to have some kind of hot cold, protocol in there, they can, fork it, they can change bits, and like release their own, release their own, own version. And like, I really hope that Cerberus becomes kind of just a basis for the industry to come to some kind of, consensus on how to do, very standard multi-sig security, in a, in a, secure, in a secure way." }, { "speaker": "stephan", "time": "41:33", "start": 2492.7, "text": "Right, yeah, and I can definitely appreciate the usability concern that you've got as well, because it can be a bit daunting if somebody picks up the protocol and, and it's just too detailed and there's just too much, they might not actually go through with using it at all. So I, I guess you are sort of, trying to ride the edge in terms of what's that right balance that you can get the user to adopt something that's more secure, while at the same time, not making, not making too many- Any trade-offs that, you know, might impinge on the security of the overall setup, set, you know, for example, not using multi-multi-sig multi-sorry, multi-hardware for the multi-signature, but I, I think some of that will become easier over time because hopefully, You know, Electrum will have sort of easier, or inbuilt setup for some of these. So for example, to do like cold card and Trezor might be more feasible, once a certain pull request is-- or once, I think there's like a pull request that's already been merged in, and once the next main release of Electrum comes out, that might make it easier as well. You" }, { "speaker": "neil_woodfine", "time": "42:36", "start": 2556.37, "text": "can, you can already do mixed-- You can already do mixed hardware wallets with Electrum. It's, it's still possible, I think like the, the It's a great wallet, don't, don't get me wrong, I think those guys have done an incredible job, but like, I think the UI, has, still has a lot of room for improvement. but yeah, you can, you can already do mixed, mixed hardware wallets. We, we, we tried in the early stages of development of, Cleverstone with, Trezor and Ledger, but we found that, like, it worked, but there was a lot of bugs, a lot of errors thrown, and we didn't think that Be encouraging for anybody trying to deploy, deploy the protocol. So just make it super, super simple. I mean, right now, like I say, you've got companies out there storing, Bitcoin on a single trezor, like put in a drawer or in a vault somewhere. Like this is already, like multisigging that up is already a significant improvement. So like, let's get there first and, and, and, and think about improvements in the future as well, like, We're still in quite early stages of like the software and the hardware, like I hope in the future, there'll be more, user-friendly solutions, and then we can start incorporating that into the protocol and like reducing whole sections that have been automated through software, potentially as well, like if Cerberus proves to be, useful for people and it gets a decent amount of adoption, like The people could release like Cerberus companions that like, directs people like what to do next and, and that kind of thing. Although as well, when you're, whenever you're introducing new software, you're also introducing new risks because it can tell people to do the wrong thing, or provide like compromised addresses or, or that kind of thing. So for example, in our protocol, we couldn't find any way around getting the user to verify their Electrum install, which is pretty daunting, I think, for a, a, a basic computer. user. But like, we're just like, okay, we can't have people using Electrum's that they haven't verified, so it just has to go in. there's like, there's always trade-offs, but sometimes you just, there's no way around it." }, { "speaker": "stephan", "time": "44:49", "start": 2688.82, "text": "And, let's just talk about Clavestone just generally. Can you just give us an update on Clavestone generally?" }, { "speaker": "neil_woodfine", "time": "44:54", "start": 2694.22, "text": "Yeah, so I haven't mentioned it all, up to this point. Clavestone was started a couple of years" }, { "speaker": "neil_woodfine", "time": "45:07", "start": 2707.01, "text": "shared storage. So, I think, Unchain Capital call it collaborative custody, and we kind of take an inspiration from a couple of, articles. One was, Daniel Krevitz's Bitcoin's Brokard Individualism, which I'd highly recommend to everybody. he describes the agency problem with, Bitcoin storage for organizations, and suggests that in the future- We'll have like these dedicated organizations that will hold a portion of the keys, but not all of them, and that reduces the, the, the concentration of funds risk that we see with regular custodians today. And then also there was an Anton, Antonio Antonopoulos, video at the Canadian Senate hearing, and he also describes in that video the, the flexibility of models that Bitcoin provides with its, smart contracting. we could s-see a future where- With new forms of, Bitcoin banks, again, with this kind of, sharing of keys. So w-we wanted to build, a, a, a shared storage platform for companies to, to, to, store their Bitcoin, but our first trials, didn't get, get a lot of interest, and it took us quite a while to develop some of, like, for example, the setup ceremony comes straight from, from that model. we'd learnt a lot from the research that we'd done So we thought we'd, we'd," }, { "speaker": "neil_woodfine", "time": "46:38", "start": 2798.39, "text": "we had a lot of important, valuable knowledge that, like, the Bitcoin industry could benefit from, and we didn't wanna just like close it down entirely. So that, created the birth of, Cerberus. Perhaps in the future we may, we may pro- start" }, { "speaker": "stephan", "time": "46:52", "start": 2811.86, "text": "providing, So in the future you may be providing ClaveStone Consulting?" }, { "speaker": "neil_woodfine", "time": "46:58", "start": 2817.95, "text": "Yes, so, We hope the Cer-Cerberus kind of, generates some interest in, secure Bitcoin self-storage, and I think, if that, if that takes off, then, yeah, we'd, we'd be very interested in helping companies set up their own storage, whether it's with Cerberus or, or, modifications of it, and then as well, like perhaps in the future, we'd also like to explore, re-explore the, the shared, shared storage model that we originally, originally conceived." }, { "speaker": "stephan", "time": "47:27", "start": 2846.65, "text": "At the time that we're It's pretty much if you wanna do your own multisig right now, the only way is Electrum, but, or if you're more technical, you might be able to do it with hardware wallet interface, but again, that's, you know, requiring a custom fork or custom, to use like the fork of Bitcoin rather than using direct Bitcoin Core and It looks to me like there are new options that are around the corner, but they're not quite here yet. So Justin Moon has his Junction project, Stepan Snydjerov and the Crypto Advance team have the Spectre project as well, which hopefully these will provide viable options that people can just do their own multisig, ideally with multiple hardware wallets, and maybe those could, also make this whole thing a little bit easier for everyone." }, { "speaker": "neil_woodfine", "time": "48:19", "start": 2898.74, "text": "Yes, definitely. there's lots of people working on lots of interesting things, and like I, I wanna make sure that, Cerberus is kind of a live document that we, develop over time. So we'll be doing our best to incorporate some of those into, into making it more secure and more," }, { "speaker": "stephan", "time": "48:34", "start": 2914.37, "text": "more user friendly. Fantastic. Well, look, I think they're the key points, to touch on with Cerberus. Did you have anything else you wanted to mention?" }, { "speaker": "neil_woodfine", "time": "48:42", "start": 2922.46, "text": "I think we covered everything, with some really good questions there." }, { "speaker": "stephan", "time": "48:45", "start": 2925.4, "text": "Great. Okay. Well, look, just, for the listeners who aren't familiar, can you just, just tell them where they can find it, find all the right, relevant links and find you as well?" }, { "speaker": "neil_woodfine", "time": "48:55", "start": 2934.65, "text": "so you can find me on Twitter, at, n woodfine. Also, the Cerberus Protocol is available at cerberus.cliffstone.io. and then for anybody that's looking to, contribute or make some, And, ask us some difficult questions. You can, find us on GitHub at, clef stone slash cerberus. We really welcome any kind of, extra eyes on the project. We've already had some fantastic feedback from, some, some other people we know in the industry. So, yeah, hoping we can get some more of that." }, { "speaker": "stephan", "time": "49:30", "start": 2970.46, "text": "Excellent. Well, thanks for joining me today, Neil." }, { "speaker": "neil_woodfine", "time": "49:33", "start": 2972.58, "text": "Yes, thanks a lot, Stefan. Always a pleasure." }, { "speaker": "stephan", "time": "49:35", "start": 2975.26, "text": "Alright, so that's the interview. Just one point Neil made to me in the post-interview comments was just that he wanted to also mention the state risk as well. So consider it this way, if everyone puts all their bitcoins with custodians, then the government can come to a large custodian and potentially confiscate those bitcoins or perhaps try to influence that custodian to try to fork the protocol into a direction that Bitcoin hodlers may disagree with. And so from that point of view, it's also It's a good idea to help businesses self-custody where that is possible, and in doing so, you may be adding to Bitcoin's anti-fragility. That said, note that the Cerberus protocol is making certain security trade-offs when compared with, say, Glacier Protocol, however, it's doing these for the purposes of usability and given that using multi-signature would be better than the current alternative that some bi-- Bitcoin businesses are using, it's worth thinking about if, if you're running a Bitcoin business. So with that in mind, go experiment with the service protocol and make your own suggestions or comments on the protocol. I think there are benefits for businesses using a standard, simple protocol for safe storage of their bitcoins, and if you're bullish like I am, they'll be There'll be a need for these things in the years to come. So lastly, find the show notes, the transcript, and the link to subscribe to my podcast on my website stephanelivera dot com. That's it from me, thanks guys, and I will see you in the citadels." } ] }