Storing private keys securely can be challenging. This is of course true for ordinary users, but it can be just as true for large-scale custodians: The thousands of bitcoin stashed on exchanges present a juicy mark for hackers, and the seemingly endless list of multimillion-dollar thefts is a painful testament to the risks that come with this solution.
But a technical measure to counter heists could be on the way. Today, Bitcoin Core contributor Bryan Bishop published a revamped proposal for “Bitcoin Vaults,” an idea first proposed in 2016. Through a clever smart-contract setup, Vault users could react to a theft by reclaiming the funds, hopefully disincentivizing theft in the first place. What’s more: None of this requires any changes to the Bitcoin protocol.
“What’s exciting about this to me — and we still need to evaluate this and test it — is that this might be a reliable way to limit losses from theft,” Bishop told Bitcoin Magazine. “I think this could go a long way toward changing the landscape in Bitcoin for exchange hacks and personal bitcoin storage.”
The Bitcoin Vaults Backstory
The concept of Bitcoin Vaults dates back to at least 2016, when researchers from the University of Münster (Malte Möser) and Cornell University (Ittay Eyal and Emin Gün Sirer) proposed a solution to lock up coins in such a way that a theft could temporarily be reversed.
In simplified terms, Möser, Eyal and Sirer’s Bitcoin Vaults were designed with special Bitcoin addresses that would have two private keys attributed to them: one “Vault Key” and one “Recovery Key.” The Vault Key would be used to spend coins, while the Recovery Key could be used to reverse the transaction for some
