Coinkite Promises to Offer Secure Storage For Bitcoin Companies

Danny Bradbury
Feb 19, 2014 at 06:14 UTC
Updated Feb 19, 2014 at 15:01 UTC

Bitcoin debit card provider Coinkite has expanded its mission – it now wants to be the go-to provider for bitcoin companies needing safe private key storage.

The company, which shipped the first point of sale systems for its bitcoin debit cards early this year, is preparing to launch an API this summer, which will enable companies to store their bitcoins on its custom-built hardware security modules (HSMs).

“With this API you’d have deposit and withdrawal and receiving address generation power,” said CEO Rodolfo Novak, explaining how third parties could use its HSMs to store funds offline for their users.

The firm already uses the HSMs to store private bitcoin keys for its debit card customers. The HSMs, which it builds itself, are designed to store the keys securely. He describes them as “bitcoin smart”, able to sign bitcoin transactions themselves.

“Very soon we will start reselling the HSMs too, so you won’t even have to trust us with your private key,” he said, adding that this would be a more expensive, enterprise-class solution. “You could put one of our HSMs in your facility. We have no access to it. But this HSM would use our API to be able to facilitate every single transaction that you do.”

The solution will appeal to exchanges and online wallet companies in particular, he said. They don’t want to hold all of their bitcoins in hot storage, where it is accessible online, in case they get hacked. But if they hold too much in cold storage (stored offline) they risk not having enough to cover their daily needs.

“Those guys have huge problems with float, and they’re constantly faced with hacking attempts. Everyone is, in this industry,” Novak said. The HSMs would enable them to keep coins accessible for online use, but in highly secured systems.

New POS machines

Coinkite is also expanding its core point of sale terminal business with a new model. Thus far, the company has sold just one type of POS machine, featuring a camera for reading QR codes, along with GSM connectivity, WiFi, and other features.

Around April, it is planning a scaled-down version that will cost a little more than half the price, said Novak. “It will not have the QR code reader or GSM; only the WiFi capability. “It’s perfect for retail. It’s cheap, and rugged,” he said. “And it still takes our debit card.”

The idea is to entice even more retailer customers on board. The firm now has around 40 outlets using its bitcoin POS system across the globe, Novak said. Aside from bitcoin-related businesses, they include barbecue eateries, a couple of hotels, a bistro, a surgery clinic in Australia, and computer and electronic stores.

To this end, the firm has also rewritten the code for its online store, relaunching it last week to make the ordering process easier. It has revamped the ordering system, denominating it in fiat.

It now lists prices in 14 different fiat currencies, alongside bitcoin and litecoin, although it still only accepts payments in the virtual currencies. Fiat pricing is constantly adjusted using a weighted average from several exchange sources.

This will also make it easier for retailers to order its debit cards in bulk, he said. The firm is shipping bulk cards to retailers who then pre-load them with bitcoins and sell them for fiat currency.

This would effectively turn the retailers into exchanges for bitcoin. There is a switch on the current POS hardware that enables it to operate in either exchange or POS mode.

Exchange mode enables a retailer to effectively operate as a bitcoin ATM, buying and selling bitcoins, transferring bitcoins to the firm’s debit cards, or printing out paper wallets with the coins on them.

The ability to switch this off at the terminal is important as regulators begin to hammer out the rules around bitcoins, Novak pointed out.

“We chose to be a bitcoin company in the bitcoin way. We don’t touch fiat,” he said. “I find it hard to believe that the government would find a way to regulate bitcoin itself, but it may find a way to regulate the point of exchange.”

His own government of Canada recently announced that it would be regulating bitcoin, for example, but gave little detail.

The firm is also testing several other features in preparation for launch. One such capability is fund forwarding, which would enable bitcoins entering a Coinkite account to be automatically forwarded in full or in part to another bitcoin address.

“Let’s say that you have a need to convert funds to fiat. We don’t want to prevent you from choosing the best exchange you prefer, so you can send it to BitPay, Coinbase, Bitstamp, or cold storage. You can send it to whatever you want,” Novak concluded.

Pricing on the HSM modules has not yet been decided, but API access will be charged at a monthly rate.

Disclaimer: This article should not be viewed as an endorsement of Coinkite. Please do your own research before considering spending any funds on this service.

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