I want to tell you what threshold signatures are and I want to convince you that threshold signatures are a technology you need. This is collaborative work.

There are three things I want to tell you today. The first is that the banking security model has been very very refined and has sophisticated techniques and process and controls for ensuring security. It does not translate to Bitcoin. This may seem surprising. Hopefully it will be obvious in retrospect.

You need Bitcoin-specific technologies. You should be using multisig. Multisig has some serious drawbacks and they may apply to your specific case to a greater or less degrees.

Then I want to explain threshold signatures and how they are stealth multisig.

The people I want to address are developers, developers of wallets, people at companies. This is an up and coming technology. I hope to be back in a year that you need threshold signatures even for mainstream for consumers. But this is mostly directed to early adopters at this stage.

As an aside, yesterday in Joi's talk he waved this paper at you, and he said "gee wouldn't it be great if we could bring some computer scientists into this room". As one of the authors of this paper, I was like "that's great". That was awesome to see that dialog here. Andrew Miller will be up next, also one of the authors of that paper.

So yeah at Princeton we have been you know doing a bunch of research from a neutral perspective talking both about strengths and weaknesses and developing prototype technology that we hope others will adopt.

Let me ask you a question. Who recognizes who this person is? Not you Andrew. Someone else. Do you have a guess? Yes. This is Ross Anderson. He is a towering person in information security. He is a professor at Cambridge, and in particular in the economics of infosec. If you are interested in Bitcoin security you should read everything that this man has written. In particular he has this great book, "Security Engineering". I highly recommend it. Chapter 10, banking and bookkeeping. It's wonderful stuff. He has great insights. You should take a look at this.

The reason why I bring this up is that Ross destroys the idea that banking security systems, even though they are digital, he destroys the idea that they are secured by technology. Instead he points out with many examples that it is the human processes that banks have, and non-technology things like audits, and recovering money even if the money is lost, that's what keeps them secure. Not access controls and money. You will be convinced of this if you read the chapter.

Banks have an undo button. This is an important and key property of the financial system. You can reverse transactions. You have the force of law enforcement and the legal system to go after the perps of financial crime. He explains that it is these factors that keeps them secure.

Of course, banks do have access controls. But it's a minor part. It's the detective and corrective measures of security that really keeps the financial system secure.

The reason why this is relevant is because in Bitcoin we do not have the ability to undo or reverse transactions. So it is more difficult to go after perps. It forces us to do the most with preventive security. This is a key difference to understand. I will show you the magnitude of this difference.

I want to point out that we often tend to forget this. In the usability panel, great panel by the way, people made the point that these banks have evolved security systems and they will be imported into the Bitcoin context. I think we have a lot to learn from banks, but bringing that into Bitcoin security is unlikely. There will be this big asymmetry always.

Just to emphasize this difference. "Nobody sells gold for the price of silver" is a great paper that emphasizes that the reason why the financial system is secure is not because they have great ways of securing credentials, but because they have really good ways of ensuring that things don't blow up even if someone does.

This is a quote: "In the underground market, in one example, 40k financial transactions with a face value of $10M and it traded for a market value of only $500." What does that tell you? Even if access control has been breached, the damage that can be caused is so little, because of reversibility. $10M to $500 and how much credentials are actually worth.

Bitcoin does not have this luxury. This is fundamental. This is a good thing, we want no reversibility. This is why Bitcoin is great. But we have to acknowledge that it puts us on the back foot here. In Bitcoin if someone gets credentials for $10M, that's exactly worth $10M and there's no difference. Theft is more or less risk free and irreversible.

There are some things we can do. I think the first step in solving the security problem is to acknowledge it and see how severe the disparity is with the traditional system.

We need Bitcoin-specific security measures.

In particular, software has never been put in a position where it has been the sole line of protection for money. Now it is. We need to deal with this. Software security has not evolved to respond to these high requirements. This is a cultural phenomenon that might change in the future but is not ready yet. Software security is not ready to handle by itself the stresses that Bitcoin puts it through. Every machine with Bitcoin is a sitting bug bounty.

There are 100s of strains of malware that look for Bitcoin wallets. Kapersky Labs reports that there are over 100 million malware infections that are scanning for Bitcoin wallets, per month.

By the way, we have seen this chart of these huge amounts of thefts and amounts and losses and so on. Sure we can call them stupid or something, that may even be true, but I want to point out that there are fundamental differences here and it is difficult. That's why we need better solutions.

Multisig. I think it's great. You should use it. Just to recap a little it, the idea is simple. You associate N different keys with an address. You stipulate that at least M of those keys must sign. It's like splitting your keys, but not quite. What it allows you to do is to just imagine how this can be useful, two ways. You can split those keys between different users or employees. And what you can say now is that if you have 2-of-3, even if one of these people gets hit by a bus or leaves the company, you still have the other 2 that can come together to construct a valid transaction while you recover from this development. You have the assurance that one user on their own can't do anything with the money.

You can also think of it as three different devices, so that if one gets infected with malware, the other two can still function while you recover from that hack.

Great stuff. But now I am going to ask some uncomfortable questions about multisig. The whole point of this is to resist these attacks quite well. Let's examine in more detail what happens when those bad events happen.

What happens when an employee joins or leaves? You have someone coming into the group, you want to make it 2-out-of-4. You have to move all of these BTC into a 2-of-4 address. You can't just add another key. When someone leaves the system, if someone turns out to be malicious or is fired, you have to do a similar thing.

What happens if a machine is hacked? An adversary gets into one of those 3 machines, they deploy some malware. Here's what's going to happen, if they succeeded, you have to recover from that, you are going to use the other 2 devices to a new 2-out-of-3 multisig address. You have to publicly wear a badge of shame for any negative event that may impact your security.

This sort of accumulates over time. Any internal change you make to your security process, every external adverse event.. you have to advertise it on the blockchain. Multisig does not split your keys, it allows you to advertise on the blockchain that you want to use multiple keys.

You have to constantly advertise which 2 of those people are signing a particular transaction. You are revealing way too much about the internals of your security and your current security situation to everyone on the blockchain. Companies have expressed concerns about this.

Despite this, I think multisig is great. I had a student a couple days ago run some numbers about adoption of multisig on the blockchain (see p2sh.info). I think that's turning out to be true- 2014 was the year of multisig. What we saw is that adoption peaked in August 2014. It was around 1% of all transactions. This is bad people. I am here to tell you that threshold signatures are better, but multisig is still pretty good. There still needs to be more adoption of these technologies. Access control measures are not sophisticated enough to distinguish between malicious users and regular use of your funds.

So if you count the 1% in terms of the amount of BTC controlled by multisig addresses, that number is much lower and that's a cause for concern.

In particular, anonymity. Multisig kind of ruins anonymity. A big part of the reason why Bitcoin we expect to be pseudonymous, that people can't trace your transactions. Let's say that a user is buying something from a shop, she might construct a transaction, she combines two of her inputs, pay an output to the merchant, and then the other one is the change address. So they can't really trace because they aren't sure which output is which. Here's what multisig does to that picture. The two inputs and two outputs have a very specific structure. If you are using multisig you will be using it for your transactions. It will be apparent to someone looking at the blockchain as to which one corresponds to the user's wallet.

Same thing with coinjoin. Different users come together and mix their inputs and outputs. Unless you are in a world where everyone is using multisig and same M-of-N for multisig, what you will see is that every one of these users will have a distinct structure for those addresses.

So how do we fix these privacy issues?

Threshold signatures, the intuition is simple. Multisignatures do not split your key. Threshold signatures do what you would expect them to do: you can take any key and then split the shares of the keys. You can share them however you like. You do not have to advertise them to the world. That's the key difference. That's the advantage.

You don't need to broadcast your security policy to the world. Let me give you some intuition for that. What is splitting a key? You want m or more shares to construct the original key. If those people want to ... on the other hand for security, if there are fewer than m people, it provides no information about the key. This rules out simple solutions like splitting the keys into different parts and concatenating, because if m-1 people are compromised then that will leave out the key and it won't work...

What is the key mathematical intuition behind splitting a key? Let's call your key S. Here's what happens geometrically. You want to draw a point on the Y axis that corresponds to X=0 and Y=S. We are thinking about this geometrically. Any key can be represented as a number. You don't have to draw the graph. Represent it as a point on your Y axis. You draw a line with a random slope through that point. Random slope is key. You picked this slope. Here's what you do. You pick an arbitrary point on that slope, you treat that as the number, you treat that as the share of the key. You give that to one employee. If that one employee is malicious, they will look at their share of the key, but they won't know what the slope was. So it could be any line through that point. The red point as far as that green user is concerned could be anything. So they have no information about what your secret is. A single user cannot compromise this system. But here's what's cool. You give different points to different users. Any two of them come together and they can draw a line through the two points, see where it intersects the Y axis, and reconstruct the key. This is how you can reconstruct the key so that not only one person can compromise the key. It's any M out of any number. It's a little bit more complex, instead of a line you draw a parabola or something and then you need 3 points, and fewer than 3 points gives you no information about which parabola it is. Any two points can interpolate the secret.

What's further cool about this is not just that you can take the split copies and put them into your machine. You don't have to put anything on the blockchain. What's also cool is that you can use any access control policy. You can designate these people as regular employees, and these people as managers and at least two people and one manager needs to sign off. All of this becomes possible, a much richer set of security policies.

So you've told me how to split the key, but now I have to reconstruct it, and if I am reconstructing the key on my machine then all the security benefits are lost. Aha. So, the answer to that is that you.. it is in fact possible to not reconstruct the key and sign transactions. These devices could execute an interactive cryptographic protocol where the key is never constructed at any single place. I wont go into that. I will link to this paper. The math is explained in the paper.

This is why we need new research. We need to bring this to Bitcoin. Key splitting was invented by Shamir, which is the S in RSA. How do we construct a signature without introducing a single point of failure?

We have a paper showing how to do this. We have a prototype. It's a two factor wallet. Split your key between your computer and your phone. The two devices can in fact together construct copies of the key. The key is never on one single device. Never at any point in the system is there a single point of failure. This is the true vision that we wanted with threshold signatures. We forked multibit to do this. You initiate a transaction on multibit, it shows you a detail, you get a popup alert on your phone, to ensure that the details ... you should match the details on your phone and computer, and then you know whether there is malware. You have the guarantee that as long as one of your devices remains secure, then the transaction that you are creating is secure. After you confirm, there is an interactive protocol, a complex dance of messaging passing through which they can construct the signature without reconstructing the key.

We have the prototype. We have the paper. Just to summarize, I will show you the link in a second. I hope what I have convinced you of is that banking has sophisticated security procedures. Those come into play because transactions are reversible and they have strong forms of KYC. For Bitcoin, multisig is good but it has drawbacks like it destroys anonymity and it forces you to display your security on the blockchain. Threshold signatures are a form of stealth multisig, it allows you to take control. Work with us to make this ready. This is the url.

https://freedom-to-tiner.com

https://freedom-to-tinker.com/blog/stevenag/threshold-signatures-for-bitcoin-wallets-are-finally-here/

previous implementation problems: https://freedom-to-tinker.com/blog/stevenag/threshold-signatures-and-bitcoin-wallet-security-a-menu-of-options/

Q: Is the key generated in one place?

A: Great question. No.

http://www.cs.princeton.edu/~stevenag/threshold_sigs.pdf