Cryptocurrency enthusiasts know that the safest way to store their digital assets is offline in cold storage. Generally, this is done via a hardware or paper wallet, but according to Wired, it seems that Coinbase has an alternative approach to storing crypto offline.
The largest cryptocurrency exchange in the United States manages over 20 million users, with billions of dollars in cryptocurrency on top of that. While some of these digital assets are stored more traditionally, journalist Tom Simonite recently revealed Coinbase’s Faraday tent solution to cold storage.
Mobile Cold Storage
Inside these tents, Coinbase employees print private keys for their users. The tent walls block electromagnetic signals coming in or out—preventing any would-be hackers from getting involved. When setting up the tent, Coinbase chooses a random space to sit all while using a shielded power supply as not to draw any attention.
Inside, you’ll find nothing but a MacBook, a Linux-powered computer, a table, a printer, and a lamp. The tent runs about 8 feet wide, with no signals coming in or out. According to Coinbase Head of Security Philip Martin, the process “takes most of a day, and we’re in there until it’s done.”
The entire process is video recorded for later viewing, with the company utilizing two brand new laptops to do so. These computers have wi-fi cards and hard drives removed before generating private keys.
With the power of their one-of-a-kind software, Coinbase staff generates the keys on the Linux computer before splitting them “into multiple encrypted pieces encoded into a series of QR codes.” These codes are then printed out via the MacBook, while the Linux laptop is instantly destroyed to protect the data.
Backup copies of the codes are stored via USB and spread across the world, while the main versions are stored in a vault somewhere in Coinbase’s home area of San Francisco.
Martin defends the seemingly overly-complex process:
“Cryptocurrencies have a threat model that’s fundamentally different from what’s come before. We’re taking the lessons from the past about physical security and blending them with well structured cryptography.”
Also, the article notes that institutional investors have regulations that require exchanges to “place customers’ assets with a ‘qualified custodian’”. Coinbase is evidently taking that position very seriously.
Suggested Reading : Learn why Coinbase is among our best bitcoin exchanges.
An Extended Process
Back at headquarters, clients can request their funds at any time. However, for the sake of security, it takes a day or two for the process to go through. Each client uses a specific USB key to make a transfer request. Then, those requesting must have a video call with Coinbase employees, before another group, consisting of individuals called “sages”, verifies the users and their information.
Finally, another team uses their own private codes to contact “librarians” who have access to the papers mentioned above with QR codes on them. The librarians will scan a variety of QR codes to put the private key back together, allowing the trading to occur.
Coinbase has been in the news quite a bit lately. The company recently described blockchain and its importance to the Web 3.0 Revolution, while also introducing its own core principles to showcase the mission behind the exchange.