If your bank account was emptied during a hacker attack, your bank can refund the money you lost. However, if your crypto wallet was hacked and your Bitcoins were sent to a foreign address, they are permanently lost. Bitcoin Vaults are designed to prevent this.
The reason for the irrevocable loss is that most crypto currencies are not controlled by a central instance. There is therefore a great need for secure storage methods for Bitcoins and other crypto currencies.
One of the most common ways to protect your Bitcoins from attackers is to sign-off on transactions using hardware wallets. The signing process takes place offline. Since the private key of hardware wallets does not come into contact with an online server during the signing process, hackers cannot access the private key used for this purpose. However, the process of transferring to and from an offline wallet (cold wallet), is more complex than with a conventional online wallet (hot wallet).
Built-in time delay secures crypto-currencies
In order to ensure a simpler yet an equally safe storage method, the idea of a “Bitcoin Vault” was proposed as early as 2016. The basic idea is that Bitcoins are stored with a code. This code ensures that Bitcoins are issued for a limited period of time. The owner can define a pre-defined time delay for each attempt to transfer Bitcoins. This built-in delay makes it possible to give the actual owner of the Bitcoins enough time to undo a transaction in case of an attack.
In the prototype recently launched by Bitcoin developer Bryan Bishop, users of “Bitcoin Vaults” can also divide the stored Bitcoins into sections. This ensures that a limited number of Bitcoins can be sent to specific addresses at a specified interval. The prototype also envisages the introduction of a so-called “watchtower” that monitors the Bitcoin Vaults. Each time Bitcoins are to be transferred, the Watchtower will send a message to the owner. If the transfer is not authorized by the owner, the “Bitcoin Vault” user can activate a pre-signed transaction that would transfer the Bitcoins in question to a secure cold wallet. This can prevent theft.
A win-win situation for all involved
The big advantage of this idea is that the technology can be used free of charge by professional crypto-safeguards. As with all open source projects in this area, the entire industry ultimately benefits from such solutions. Bryan Bishop’s ultimate goal is therefore to make Bitcoin Vaults the standard for all crypto currencies. As mentioned earlier, Bishop’s open source project is a prototype. How exactly e.g. Watchtowers will be implemented has not yet been conclusively defined and has to be evaluated by volunteer developers at the moment. So it will take some time until Bitcoin Vaults becomes a standard, but the project already looks very promising.
*Originally published in German at CVJ.ch