6 ms·

Coinbase now storing 87% of customer funds offline

75 points by barmstrong 14y ago

qq66 14y ago
Pretty cool to think about designing a bank from the ground up without any pre-existing conceptions or regulations.
- onetwothreefour 14y ago
  And yet, they're storing the data in a security deposit box at a bank. :D
- jellicle 14y ago
  Cool, but also stupid, in the same way that designing a bridge without any pre-existing concept of engineering would be cool, but stupid.
confluence 14y ago
This is both awesome and hilarious at the same time. The whole point of bitcoin was to decouple currency from institutions (banks/governments etc.). Instead they're right back where they started - only they've replaced gold/currency with bits that can be easily copied and stolen. > "Oh but the government can't inflate us away!" No, but they sure as hell can take away your "safety" deposit box. > "But private property rights! Rule of law!" Ever heard of the quote: "The guy with the gun make the rules"? Rights don't exist separate from external force (aka the government, corporations, military, mafia etc.). Neither do laws. They are merely useful abstractions - but don't mistake map for territory. Rights/laws are, quite simply, power group sanctioned specific use of deadly force for the benefit of one or another specific group (dictator/oligopoly/the people etc.). They don't actually exist. Like money, land titles, contracts and bitcoins. Actually, now that I come to think of it a lot of things in society don't actually exist - honour, respect, gods, free markets, meritocracy, a just world and oh so much more - but let's not get ahead of ourselves shall we. I'm limiting myself to shattering only one illusion per day.
- bdr 14y ago
  Centralization of control is often useful, but it should be optional. That's what Bitcoin gets us. It's simplistic to say we're "back where we started".
  - confluence 14y ago
    Control by definition is centralized to those with power. What you mean is the delegation of control by those in power should occur - e.g. Let people make their own choices for houses, clothes, food, land, family and work to make our economies more efficient. I agree. But don't ever think that control can ever be decentralized. It can only be delegated and it can be revoked at any time (see the Internet).
    - bdr 14y ago
      You possess the zeal and subtlety of a young revolutionary.
      - confluence 14y ago
        I don't understand - what part of what I have said has anything to do with a) being a zealot or b) revolutionary. My statements were firmly on the side of the status quo police/militarily enforced liberal/social/democratic/capitalist western societies, and are, in and of themselves, neither surprising, controversial nor patently false.
    - icebraining 14y ago
      Power itself is decentralized. Even totalitarian regimes are often deposed. And even in the top, there's often a balance of power between multiple groups (see military coups). There's no such thing as perfectly decentralized power or control, but it's certainly not centralized either.
- djloche 14y ago
  >"The whole point of bitcoin was to decouple currency from institutions (banks/governments etc.)."> The above statement is incorrect. The "whole point of bitcoin" per http://bitcoin.org/about.html http://bitcoin.org/about.html : >"Bitcoin is designed around the idea of using cryptography to control the creation and transfer of money, rather than relying on central authorities." As you can see - the intent is not to decouple the currency itself from institutions, but the creation and transfer of the currency from central authorities. To address your other points: Bitcoin is on equal footing compared to other currencies with regard to many things including: government confiscation, individual risk, and institutional risk. Other currencies have the advantage of: far greater acceptance, low barrier to use (you just physically hand something to someone else) Bitcoin has the advantage of: no central bank, no central banking inflation (by design, creation and transfer is via cryptography)
magoon 14y ago
Worth noting is that the contents of a safety deposit box are not insured by FDIC. I hope they use two distinct banks for redundancy.
- natrius 14y ago
  The FDIC only insures deposits of US Dollars. Nothing Coinbase does is remotely close to being FDIC insurable.
ghshephard 14y ago
This is what you get when you have amateurs try and develop security systems. While I applaud them for at least trying, and I realize that hiring an actual security consultant is unlikely to happen, it pains me to see their security system as described. A half-decent systems security architect (in the whole scheme of things) is not that expensive - I'm sure someone like @tptacek would provide a referral to someone charging less than $1000/hour who could, in a matter of two or three weeks, architect an actual secure solution, with HSMs, XofY authorization procedures and so on, that the good people at coinbase could (or not) go off and design/deploy. [edit: Part of my pain at looking at this system, is seeing all the many, obvious flaws, that other industries that need security (military, banking, smart grids) have had to deal with and have solved in elegant, secure, reliable ways. I work in an industry where no one individual can be allowed to have excessive rights, privileges, or power over the system under their control. The many, many, many layers of security, audits, rights management, and AAA we have in place do so are impressive (though, ironically, one of the elements does involve acid-free 100 year paper in Safe Deposit boxes). Reading through the coinbase description though, is akin to reading about the encryption system created by someone who had never taken a cryptography course. The outputs from both groups can be trivially shown to be completely flawed by those who've had the opportunity to see how it's properly done. With that said, at least they are _trying_]
- jhuckestein 14y ago
  I'm genuinely curious what you think the most likely attack vector currently is and what the next most low-hanging security fruit for coinbase are. From my perspective it looks like coinbase is currently the most secure and redundant way to store your bitcoins. Of course everyone could store them on their own and design my own security system, but I doubt many people can do better than what the OP describes.
  - ghshephard 14y ago
    Security concerns that occupy 90%+ of our architects' minds: o What happens if one or more employees goes rogue? o What happens if an employee is "hit by a truck"? o What happens if an employee is blackmailed/extorted? o What happens if your offsite archive is vandalized/broken into/crashed into by a plane? These all have solutions that have been in place for 20+ years in the military/banking industry.
coin 14y ago
The private keys are still vulnerable when they existed on the servers. It would be possible for their servers to be unknowingly breached. Moving the private keys offline won't help if they've been maliciously copied. The thief could wait a while (months, year) before stealing the funds.
- Lexarius 14y ago
  The private keys need never have existed on that server. On the occasions which they are used, they need never touch the server, and the machine they're actually used on (likely a laptop with a LiveCD) doesn't need to directly communicate with the server so identifying and targeting it would be futile.
nedm 14y ago
You techno-tards need to stop storing your coins online, where the hackers and FBI can get to them. If you stash all your coins in the microwave oven, you can't get burgled! It's just common sense.
maaku 14y ago
FYI, the state of California has been known to escheat the contents of safe deposit boxes under certain circumstances. It has been known to happen by mistake or in cases where it obviously shouldn't have. If the box is escheated, the papers would be immediately shredded, and the USB keys auctioned off. You'd end up with a few cents from the state (for the USB keys, pennies to the dollar) and absolutely no recourse. I would highly recommend getting a 2nd safe deposit box with a different bank and store the exact same contents in both (or better, get 3+ total and use m-of-n encryption... but in reality the effort involved would not be practical unless you rarely dip into offline funds). PS: you're saying I only need to search banks in the bay area for one with that color scheme, floor tile, and banker, then drill/blast the box shown and make off with 90% of Coinbase's deposits in untraceable cash? Free tip #2: change boxes, soon. [EDIT: that said, I appreciate spreading the word about offline storage. It would have been better to do a blog post (maybe a follow-up?) on how others can do the same thing with Armory running on a live-cd.]
- mct 14y ago
  > PS: you're saying I only need to search banks in the bay area for one with that color scheme, floor tile, and banker, then drill/blast the box shown and make off with 90% of Coinbase's deposits in untraceable cash? You'll also need to AES-256 decrypt the contents of the box.
  - JoachimSchipper 14y ago
    Which can, depending on how the AES key has been generated, take basically forever or, say, ten minutes. (Using SHA-1(password) as your AES key is not a great idea.)
tlrobinson 14y ago
Optar (linked in the comments) looks like an interesting way to archive small amounts of data. Up to 200kB per A4 page. http://ronja.twibright.com/optar/ http://ronja.twibright.com/optar/
ixobelle 14y ago
Oh boy bit coin, snore
jpalomaki 14y ago
Could somebody suggest an easy to use tool that would allow them to encrypt the stored information so that it could be only decrypted when two out of three employees collaborate?
- dchest 14y ago
  Shamir's Secret Sharing Scheme http://point-at-infinity.org/ssss/ http://point-at-infinity.org/ssss/ Demo: http://point-at-infinity.org/ssss/demo.html http://point-at-infinity.org/ssss/demo.html Not a full "give me three shares and encrypt this file with a secret key" tool though.
  - eric_bullington 14y ago
    Really cool program, and readily available on the debian repo, too! In case anyone tries this out of curiosity, like I did, be sure to include the generated index number as part of the share. I failed to include the index number and couldn't get it to work until I realized it was necessary to input the entire string, not just the hash. I don't get why you write "Not a full 'give me three shares'...secret key tool". That seems like exactly what this is. Are you saying it would work better if you could provide the share "passwords" yourself, instead of the machine generating them? This seems like it would be a great way to encrypt the encrypting key used for the bitcoin wallet in this instance. Security professionals? Do the algorithms used look robust?
Tichy 14y ago
Interesting, but I suspect "real" banks have a long time ago devised a better solution: instead of storing money, they lend it out to other people. That is presumably how they make most of their money. But perhaps the old school "let's store money in a vault" thing becomes viable again with BitCoin, will be interesting to see.
- icebraining 14y ago
  On the other hand, storing USD or EUR on a "real" bank will effectively leave you with less money than you put in, unlike Bitcoins which have been gaining value even when sitting still.
biturd 14y ago
This is a little OT, but I am confused. I just opened an account at MtGox and it is asking me for a verification step, one which will include all my personal data, and a image of my face or scan of an ID card. I thought the one aspect of bitcoins was anonymity? They also have been the victim of at least one, probably more, hacking escapades. Why would anyone be inclined to give them this information? What is a good recommended place to purchase a few coins just for fun? And then do most people xfer then to this CoinBase?
- s_henry_paulson 14y ago
  https://www.bitinstant.com/ https://www.bitinstant.com/ is often recommended for quick purchases. Most people keep bitcoins in their own wallets on their own computer, USB sticks, whatever. Make multiple copies of your wallet, and encrypt them if there is any risk of other people getting your wallet. Or test out services like coinbase if you feel comfortable trusting someone else with your money.
- icebraining 14y ago
  I thought the one aspect of bitcoins was anonymity? It's not (only pseudo-anonymity), but in any case, MtGox is not bitcoin, but a service on top of it. If you want something closer to anonymity (yet not real anonymity either), you need to run your own client and do all the things that prevent others from tracking it back to you (run it through Tor, use an anonymous gateway, etc). And even if you achieve that, chances are that you won't be able to do much with your bitcoins.
mr_luc 14y ago
I can't believe that with 45 comments, no one has mentioned BlockChain.info or other "zero-trust" solutions like Electrum. That way your "funds" are in the BitCoin block chain, and no person, website or service provider can steal them from you, as long as you're certain of the security of the environment you're entering your key in. These solutions rely on you only ever using your private key to sign things OFFLINE, and then reconnecting to perform the action you signed for. BlockChain.info provides an implementation in Javascript; there are also other lightweight clients like Electrum. The steps BlockChain has gone to to allow you to verify, (with the open-source Javascript Verifier Chrome/FF/etc plugin that checks the page js to the github page), that the client-side code is secure, is frankly kind of inspiring.

75 points by barmstrong 14y ago

qq66 14y ago

Pretty cool to think about designing a bank from the ground up without any pre-existing conceptions or regulations.

onetwothreefour 14y ago
And yet, they're storing the data in a security deposit box at a bank. :D
jellicle 14y ago
Cool, but also stupid, in the same way that designing a bridge without any pre-existing concept of engineering would be cool, but stupid.

confluence 14y ago

This is both awesome and hilarious at the same time. The whole point of bitcoin was to decouple currency from institutions (banks/governments etc.). Instead they're right back where they started - only they've replaced gold/currency with bits that can be easily copied and stolen. > "Oh but the government can't inflate us away!" No, but they sure as hell can take away your "safety" deposit box. > "But private property rights! Rule of law!" Ever heard of the quote: "The guy with the gun make the rules"? Rights don't exist separate from external force (aka the government, corporations, military, mafia etc.). Neither do laws. They are merely useful abstractions - but don't mistake map for territory. Rights/laws are, quite simply, power group sanctioned specific use of deadly force for the benefit of one or another specific group (dictator/oligopoly/the people etc.). They don't actually exist. Like money, land titles, contracts and bitcoins. Actually, now that I come to think of it a lot of things in society don't actually exist - honour, respect, gods, free markets, meritocracy, a just world and oh so much more - but let's not get ahead of ourselves shall we. I'm limiting myself to shattering only one illusion per day.

bdr 14y ago
Centralization of control is often useful, but it should be optional. That's what Bitcoin gets us. It's simplistic to say we're "back where we started".
- confluence 14y ago
  Control by definition is centralized to those with power. What you mean is the delegation of control by those in power should occur - e.g. Let people make their own choices for houses, clothes, food, land, family and work to make our economies more efficient. I agree. But don't ever think that control can ever be decentralized. It can only be delegated and it can be revoked at any time (see the Internet).
  - bdr 14y ago
    You possess the zeal and subtlety of a young revolutionary.
    - confluence 14y ago
      I don't understand - what part of what I have said has anything to do with a) being a zealot or b) revolutionary. My statements were firmly on the side of the status quo police/militarily enforced liberal/social/democratic/capitalist western societies, and are, in and of themselves, neither surprising, controversial nor patently false.
  - icebraining 14y ago
    Power itself is decentralized. Even totalitarian regimes are often deposed. And even in the top, there's often a balance of power between multiple groups (see military coups). There's no such thing as perfectly decentralized power or control, but it's certainly not centralized either.
djloche 14y ago
>"The whole point of bitcoin was to decouple currency from institutions (banks/governments etc.)."> The above statement is incorrect. The "whole point of bitcoin" per http://bitcoin.org/about.html http://bitcoin.org/about.html : >"Bitcoin is designed around the idea of using cryptography to control the creation and transfer of money, rather than relying on central authorities." As you can see - the intent is not to decouple the currency itself from institutions, but the creation and transfer of the currency from central authorities. To address your other points: Bitcoin is on equal footing compared to other currencies with regard to many things including: government confiscation, individual risk, and institutional risk. Other currencies have the advantage of: far greater acceptance, low barrier to use (you just physically hand something to someone else) Bitcoin has the advantage of: no central bank, no central banking inflation (by design, creation and transfer is via cryptography)

magoon 14y ago

Worth noting is that the contents of a safety deposit box are not insured by FDIC. I hope they use two distinct banks for redundancy.

natrius 14y ago
The FDIC only insures deposits of US Dollars. Nothing Coinbase does is remotely close to being FDIC insurable.

ghshephard 14y ago

This is what you get when you have amateurs try and develop security systems. While I applaud them for at least trying, and I realize that hiring an actual security consultant is unlikely to happen, it pains me to see their security system as described. A half-decent systems security architect (in the whole scheme of things) is not that expensive - I'm sure someone like @tptacek would provide a referral to someone charging less than $1000/hour who could, in a matter of two or three weeks, architect an actual secure solution, with HSMs, XofY authorization procedures and so on, that the good people at coinbase could (or not) go off and design/deploy. [edit: Part of my pain at looking at this system, is seeing all the many, obvious flaws, that other industries that need security (military, banking, smart grids) have had to deal with and have solved in elegant, secure, reliable ways. I work in an industry where no one individual can be allowed to have excessive rights, privileges, or power over the system under their control. The many, many, many layers of security, audits, rights management, and AAA we have in place do so are impressive (though, ironically, one of the elements does involve acid-free 100 year paper in Safe Deposit boxes). Reading through the coinbase description though, is akin to reading about the encryption system created by someone who had never taken a cryptography course. The outputs from both groups can be trivially shown to be completely flawed by those who've had the opportunity to see how it's properly done. With that said, at least they are _trying_]

jhuckestein 14y ago
I'm genuinely curious what you think the most likely attack vector currently is and what the next most low-hanging security fruit for coinbase are. From my perspective it looks like coinbase is currently the most secure and redundant way to store your bitcoins. Of course everyone could store them on their own and design my own security system, but I doubt many people can do better than what the OP describes.
- ghshephard 14y ago
  Security concerns that occupy 90%+ of our architects' minds: o What happens if one or more employees goes rogue? o What happens if an employee is "hit by a truck"? o What happens if an employee is blackmailed/extorted? o What happens if your offsite archive is vandalized/broken into/crashed into by a plane? These all have solutions that have been in place for 20+ years in the military/banking industry.

coin 14y ago

The private keys are still vulnerable when they existed on the servers. It would be possible for their servers to be unknowingly breached. Moving the private keys offline won't help if they've been maliciously copied. The thief could wait a while (months, year) before stealing the funds.

Lexarius 14y ago
The private keys need never have existed on that server. On the occasions which they are used, they need never touch the server, and the machine they're actually used on (likely a laptop with a LiveCD) doesn't need to directly communicate with the server so identifying and targeting it would be futile.

nedm 14y ago

You techno-tards need to stop storing your coins online, where the hackers and FBI can get to them. If you stash all your coins in the microwave oven, you can't get burgled! It's just common sense.

maaku 14y ago

FYI, the state of California has been known to escheat the contents of safe deposit boxes under certain circumstances. It has been known to happen by mistake or in cases where it obviously shouldn't have. If the box is escheated, the papers would be immediately shredded, and the USB keys auctioned off. You'd end up with a few cents from the state (for the USB keys, pennies to the dollar) and absolutely no recourse. I would highly recommend getting a 2nd safe deposit box with a different bank and store the exact same contents in both (or better, get 3+ total and use m-of-n encryption... but in reality the effort involved would not be practical unless you rarely dip into offline funds). PS: you're saying I only need to search banks in the bay area for one with that color scheme, floor tile, and banker, then drill/blast the box shown and make off with 90% of Coinbase's deposits in untraceable cash? Free tip #2: change boxes, soon. [EDIT: that said, I appreciate spreading the word about offline storage. It would have been better to do a blog post (maybe a follow-up?) on how others can do the same thing with Armory running on a live-cd.]

mct 14y ago
> PS: you're saying I only need to search banks in the bay area for one with that color scheme, floor tile, and banker, then drill/blast the box shown and make off with 90% of Coinbase's deposits in untraceable cash? You'll also need to AES-256 decrypt the contents of the box.
- JoachimSchipper 14y ago
  Which can, depending on how the AES key has been generated, take basically forever or, say, ten minutes. (Using SHA-1(password) as your AES key is not a great idea.)

tlrobinson 14y ago

Optar (linked in the comments) looks like an interesting way to archive small amounts of data. Up to 200kB per A4 page. http://ronja.twibright.com/optar/ http://ronja.twibright.com/optar/

ixobelle 14y ago

Oh boy bit coin, snore

jpalomaki 14y ago

Could somebody suggest an easy to use tool that would allow them to encrypt the stored information so that it could be only decrypted when two out of three employees collaborate?

dchest 14y ago
Shamir's Secret Sharing Scheme http://point-at-infinity.org/ssss/ http://point-at-infinity.org/ssss/ Demo: http://point-at-infinity.org/ssss/demo.html http://point-at-infinity.org/ssss/demo.html Not a full "give me three shares and encrypt this file with a secret key" tool though.
- eric_bullington 14y ago
  Really cool program, and readily available on the debian repo, too! In case anyone tries this out of curiosity, like I did, be sure to include the generated index number as part of the share. I failed to include the index number and couldn't get it to work until I realized it was necessary to input the entire string, not just the hash. I don't get why you write "Not a full 'give me three shares'...secret key tool". That seems like exactly what this is. Are you saying it would work better if you could provide the share "passwords" yourself, instead of the machine generating them? This seems like it would be a great way to encrypt the encrypting key used for the bitcoin wallet in this instance. Security professionals? Do the algorithms used look robust?

Tichy 14y ago

Interesting, but I suspect "real" banks have a long time ago devised a better solution: instead of storing money, they lend it out to other people. That is presumably how they make most of their money. But perhaps the old school "let's store money in a vault" thing becomes viable again with BitCoin, will be interesting to see.

icebraining 14y ago
On the other hand, storing USD or EUR on a "real" bank will effectively leave you with less money than you put in, unlike Bitcoins which have been gaining value even when sitting still.

biturd 14y ago

This is a little OT, but I am confused. I just opened an account at MtGox and it is asking me for a verification step, one which will include all my personal data, and a image of my face or scan of an ID card. I thought the one aspect of bitcoins was anonymity? They also have been the victim of at least one, probably more, hacking escapades. Why would anyone be inclined to give them this information? What is a good recommended place to purchase a few coins just for fun? And then do most people xfer then to this CoinBase?

s_henry_paulson 14y ago
https://www.bitinstant.com/ https://www.bitinstant.com/ is often recommended for quick purchases. Most people keep bitcoins in their own wallets on their own computer, USB sticks, whatever. Make multiple copies of your wallet, and encrypt them if there is any risk of other people getting your wallet. Or test out services like coinbase if you feel comfortable trusting someone else with your money.
icebraining 14y ago
I thought the one aspect of bitcoins was anonymity? It's not (only pseudo-anonymity), but in any case, MtGox is not bitcoin, but a service on top of it. If you want something closer to anonymity (yet not real anonymity either), you need to run your own client and do all the things that prevent others from tracking it back to you (run it through Tor, use an anonymous gateway, etc). And even if you achieve that, chances are that you won't be able to do much with your bitcoins.

mr_luc 14y ago

I can't believe that with 45 comments, no one has mentioned BlockChain.info or other "zero-trust" solutions like Electrum. That way your "funds" are in the BitCoin block chain, and no person, website or service provider can steal them from you, as long as you're certain of the security of the environment you're entering your key in. These solutions rely on you only ever using your private key to sign things OFFLINE, and then reconnecting to perform the action you signed for. BlockChain.info provides an implementation in Javascript; there are also other lightweight clients like Electrum. The steps BlockChain has gone to to allow you to verify, (with the open-source Javascript Verifier Chrome/FF/etc plugin that checks the page js to the github page), that the client-side code is secure, is frankly kind of inspiring.