In the wake of such public image setbacks as the Mt. Gox heist and the incessant security threats testing the Bitcoin space, more and more exchanges (Bitstamp, Huobi, etc.) are increasingly implementing multisignature security in their wallets. The addition promises greater protection of funds by removing centralized points of failure due to the traditional custodial account model.

One of the companies at the forefront of this trend is Cryptosigma, a Singapore-based multisignature digital wallet provider. Cryptosigma has partnered with Venice-based Bitcoin API developer Gem, which recently held a US$2M funding round and onboarded former PayPal executive, Ken Miller (COO), whom we recently interviewed.

Bitcoin certainly suffers from an image problem and, arguably, two of the biggest issues contributing to this are security and price volatility, which are slowing adoption and hampering consumer confidence in the new technology.

Cointelegraph had the chance to sit down with Ken Miller and Cryptosigma founder and CEO, Aaron Siwoku, to discuss the pressing issue of securing customer funds, as well as Cryptosigma’s unique in-wallet auto-conversion feature, which may remove the volatility from the equation and do for the average consumer what BitPay did for merchants.

Cointelegraph: Are the much-discussed hacks and thefts that we hear so much about in the media, such as Mt. Gox, the direct result of their centralized, custodial account structure? Could you elaborate on this?

Ken Miller: The beauty of multisig is that when implemented appropriately, it actually provides much better security than the historical custodial account model, which is basically just a password-protection model that can easily be hacked. With multisig, instances like Mt. Gox would never happen because even if the exchange's online key is hacked, they still would need the co-signing key of the 3rd-party multisig provider. Alternatively, if the 3rd party multisig provider's co-signing key is hacked, funds cannot be touched because the exchange's keys are still needed.

“The beauty of multisig is that when implemented appropriately, it actually provides much better security than the historical custodial account model.” —Ken Miller

Aaron Siwoku: One of the big issues that I think entrepreneurs and developers in the wallet and/or exchange space need to address is the custodial control of users’ funds. The beautiful thing about Bitcoin is that it’s decentralized money, and the moment we centralize user accounts and funds through the custodial control of their wallet addresses (private keys), rather than give each user the responsibility to control their own private keys, is the moment we cannot distinguish ourselves from the centralized banking model that has existed for centuries.

CT: What is the best way to overcome this problem?

KM: It can be solved by exchanges, wallet providers, payment processors, and others in the ecosystem migrating away from custodial models to noncustodial 2-of-3 multisig models, where hackers gaining access to a single online key cannot do anything with that key. As organizations migrate their platform to (or launch from the beginning with) noncustodial multisig solutions, those that remain with custodial wallets will have an even bigger target on them as they become the minority.

AS: In terms of solving the problem I think that apart from the very juicy incentive for hackers to compromise a Bitcoin exchange’s centralized operational wallet or “hot wallet,” knowing that they're likely to find a large amount of funds in one place, we as the community lose the ability to distinguish ourselves from the legacy system that currently exists. It’s a lose-lose situation. The very fact that Bitcoin is decentralized programmable money affords us some unique advantages; namely increased security and theft protection based on the fact that if a hacker cannot be sure he will find a large cache of funds in one place such as an exchange’s centralized “hot wallet,” he is less incentivized to risk getting caught for a potentially small pay day.

“When we see the migration of exchanges […] to the implementation of non-custodial user wallets, [coupled] with the implementation of multisig wallets, […] over time we will see a mind-numbing reduction in the percentage of wallet funds that are compromised each year.” —Aaron Siwoku

When we see the migration of exchanges currently operating a custodial system to the implementation of noncustodial user wallets where each user is responsible for their own private key, and we can couple that with the implementation of multisig wallets that have some rules-based systems that can identify unusual spending patterns and become more artificially intelligently accustomed to a user’s spending behavior, over time we will see a mind numbing reduction in the percentage of wallet funds that are compromised each year. It’s a little bit like all the large amount of credit card fraud that was happening before SSL certificates were implemented as a standard for online shopping portals. These are normal growing pains but the sooner we move past them the better.

CT: Do you see a future for the traditional custodial-exchange model?

AS: I think that there will always be custodial models, whether it’s in Bitcoin or anything else. This issue being that, as a society, due to a historic lack of technological democracy, we have all become very accustomed to the concept that, in order to truly secure something, it must be done by a third party who has more technology and expertise than us and [that] it’s worth paying them a fee to do so.

“[In] the 21st century, technology is becoming more democratic than ever before, and so money should hopefully follow too.” —Aaron Siwoku

But in the 21st century, technology is becoming more democratic than ever before, and so money should hopefully follow too. The second issue is that, regardless of anything, there is always going to be a group of people who don't convert immediately, or at all, to a new technology or way of doing something, for their own very specific reasons. I have a close friend my age who still refuses to use social media, but then my best friend’s 81-year-old grandad has an iPad. My point is [that] nothing ever really ceases to exist, but real problems find real solutions because the market is intuitive.

CT: The multisig approach requires a bit more responsibility from the user. Do you think people will eventually warm to the idea of “being their own bank”?

KM: For sure they will. If you go back to the prebank era, people were quite used to (and comfortable with) holding their own funds. They would store and carry money, and had total autonomy over who was in control of their money. There were two issues at the time, however: (1) security and (2) access. With security, theft became an issue with people frequently transporting funds to and from their homes. With access, the issue was [that], if you were in another town visiting family or buying something, not having access to your funds was a problem.

“With Bitcoin, neither security, nor access needs to be a problem. Multisig platforms are arguably even safer than traditional bank platforms, and the beauty of Bitcoin is the accessibility anywhere in the world.” —Ken Miller

So banks showed up to help solve those issues. But with Bitcoin, neither security, nor access needs to be a problem. Multisig platforms are arguably even safer than traditional bank platforms, and the beauty of Bitcoin is the accessibility anywhere in the world, particularly as mobile apps develop. So as those issues get addressed, and security and access become commonplace in Bitcoin, I think we'll see that people by and large would prefer to return to the model where they are in control and responsible for their own funds.

CT: Could you explain how your multisig feature works in practice, what role does your partner Gem play, and where the keys are stored?

AS: When we launch, we will use an operational wallet from Gem that uses multisignature transaction signing, meaning should our hot wallet get compromised, it’s easy for us to stop signing transactions and move the funds without having to take the exchange offline for a few days while we secure the platform, as we recently saw happen with a popular Bitcoin exchange in Europe.

In addition to this, we have a rules engine that controls daily transaction volume limits and how much funds can leave our account over any given time period. Let’s say our normal 24-hour volume over the space of a month is US$1million in bitcoin. Our rules engine could be set to stop signing transactions and request authorization from someone in our team, if all of the sudden there was a spike in the hourly volume that did not fit with historical transaction volume activity. This makes it more difficult for a bad actor to move an unusual amount of funds out of the wallet in a short space of time without the system disabling itself and waiting for one of our team members to verify everything is normal.

CT: Besides multisig security, you’re also offering an auto-conversion feature that removes volatility from the equation, which essentially makes you similar to processors like BitPay, albeit with a B2C approach. How does this work exactly, and do you envision a future where Bitcoin could possibly work under the hood?

AS: I speak to a lot of non-Bitcoin people about Bitcoin, and the most common issue that crops up other than “what is it?” would always be “I saw the bitcoin price went from US$1,000 to $200. ... Why would I use something that will lose me money?” It’s a very legit issue, and I think sometimes hardcore Bitcoin adopters just answer this type of question with, “Well it’s a liquidity issue because Bitcoin is so new, but that will change in the future so just hold tight!” Sadly and understandably people aren't interested in what they can use in five years. People want real solutions for real problems that exist today!

“As there was no consumer wallet in the market offering instant conversion to fiat currency, the same way Bitpay offers [to] its merchants, we decided it would be us.” —Aaron Siwoku

I felt that this issue was a big one standing in the way of adoption and I saw large merchant payment processors like Bitpay offering instant bitcoin-to-fiat currency conversion in order to attract large merchants like Expedia and Microsoft who have no current real-world use for Bitcoin. They can’t pay staff in bitcoin, or rent or taxes ... yet. But they wanted to use bitcoin as a low cost, instant way to process transactions!

Consumers are no different. We can’t easily pay for the common things in BTC, such as grocery shopping, electricity bills, [or] rent, but we do want a cheaper and instant way to remit and receive money. As there was no consumer wallet in the market offering instant conversion to fiat currency, the same way Bitpay offers [to] its merchants, we decided it would be us, and we came up with the Auto Exchange toggle function that you will find in our web wallet platform and in our soon-to-be launched iPhone app.

CT: With Bitcoin known to have public image issues, can auto-conversion help it gain traction?

AS: I think auto conversion that works in both directions (send and receive)—meaning a user’s wallet will convert any bitcoin they receive to their currency of choice—if the Auto Exchange function is toggled on. In addition, if I want to pay for something in bitcoin, the Cryptosigma wallet will just convert the exact amount of bitcoin necessary for that transaction. I think this will definitely help Bitcoin gain traction because it helps people use bitcoin early on as a remittance or payment protocol without having to worry about what happens if the price moves downwards 10 minutes after they receive their bitcoins, and perhaps haven't had time to log in to the exchange and sell their bitcoins for local currency.

Eventually when Bitcoin becomes more widely accepted and the price stabilizes, people will already be familiar with Bitcoin as the thing that has allowed them to remit money instantly and cheaply over the last few years. This creates confidence in the system. Throw into the mix the fact that the supermarket, electricity provider and petrol station now all may potentially accept bitcoin as a payment method, users no longer need to lose transaction fees selling in and out of bitcoin to fiat currency, saving even more money on fees than they were when they first swapped banking remittance for bitcoin remittance.

CT: How do the fees compare when using Cryptosigma, in contrast to legacy money transfer networks?

AS: Legacy money transfer networks charge anything from 3.5% to 10.5% to send money. (There are some banks who do free money transfer, but their currency exchange rates will be less than favorable.) If we look at a typical use case scenario—let’s say a Cryptosigma user already has deposited funds to his or her account in the same way you would already have funds in your bank account to remit—then this would be how a remittance between two Cryptosigma users with Auto Exchange toggled on would look:

User A wishes to send US$100 to User B. For this example, we are assuming the user sends or receives more than 20 BTC per month in transaction volume and so transaction fees are 0.1%. If the user sends or receives less than 5 BTC per month, the transaction fees would be 0.5%. We also assume it is a standard bitcoin transaction, not a priority send, which costs more in miners’ fees. Slippage has also not been accounted for, but I still feel this is a good example highlighting the rough transaction cost:

User A types US$100 into her Bitcoin wallet app on the “send money” page and clicks send. The app auto buys US$100 worth of bitcoins at market price from the bitcoin open-order book and sends it to User B (with a 0.1% transaction fee + US$0.03 miners fee). User B's wallet receives the US$100 worth of bitcoin and auto-sells it at market price on behalf of User B (0.1% transaction fee + US$0.03 miners fee), which is then instantly reflected in his account balance, minus the fees (0.1% + 0.1% + US$0.06). User B's wallet shows a balance of US$99.92 (US$100 - US$0.08 in transaction fees).

This saves between 3 and 10%, versus legacy money remittance providers or banks.

CT: Could you explain the functionality and underlying costs of your Visa-Bitcoin debit card?

AS: The debit card is still a tool that involves legacy payment networks such as banks, traditional merchant payment processing and ATMs; therefore, there are still fees involved. We don't profit on these fees, we simply pass them on as they are. The debit card is something we felt would be a useful tool to combine together with Bitcoin, giving people the option to use something we are all familiar with, while at the same time promoting the use of Bitcoin as an effective way to instantly load that card with funds, as and when the user wishes. As Bitcoin gains adoption, we hope to see people use the card less and the wallet app more for day-to-day payments and spending. The debit card fees are as follows:

Card issuing fee - US$15

Purchase transaction - free

ATM transaction - US$2.50

ATM transaction international - US$3.50

Card-to-card transfer - US$0.25

CT: Finally, the Cryptosigma approach seems a bit more gradual and more in tune with the financial tools that average people have become accustomed to, such as fiat currency units and debit cards. Could you explain why you chose this strategy?

AS: We chose this strategy because we think it’s important to use Bitcoin and the blockchain technology to solve real-world problems today, not problems we feel may exist five years from now when the existing remittance model from legacy payment networks is no longer sustainable, or an existing currency system may need a more democratic, viable alternative.

“People are not familiar with Bitcoin as a unit of value yet. […] The smartest way to do that, we believe, is to give people a transparent, easy and enjoyable platform to remit currency units they currently use, such as dollars, peso, baht.”

People are not familiar with Bitcoin as a unit of value yet, and we are interested in bridging that gap. The smartest way to do that, we believe, is to give people a transparent, easy and enjoyable platform to remit currency units they currently use, such as dollars, peso, baht and eventually pounds, euros and shillings, but in a cheaper more effective way through the technological breakthrough that is the blockchain. When the market is ready to use digital currency in more complex formats, such as peer-to-peer loans or interest paid on fixed deposits per minute, instead of by the month, we will be there to provide that functionality.

CT: When can we expect to see Cryptosigma go live?

AS: If you haven't signed up for an early-access invitation to be part of our private beta launch, then now is the time to do it at www.cryptosigma.com! We are giving away a limited number of early-access invites and each invited user will receive US$10 in their account to play with, buy some bitcoin, send it or spend it. We really want you to explore our platform and give us lots of feedback. We plan to move into open beta in March, at which point anyone anywhere will be able sign up for a Cryptosigma bitcoin wallet.

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