Fedi Inc. has closed a $4.2 million seed round to fund development of the Fedi mobile app built on the Bitcoin custody protocol Fedimint. The round was led by Kingsway Capital, ego death capital and Ten31. Trammell Venture Partners, Hivemind VC, Time Chain, Recursive Capital and Steve Lee also participated.
A common refrain among bitcoiners is “Not your keys, not your coins.” In short, if you are not holding the private keys to your bitcoin – that is, “self-custodying” them – and are allowing a third party like an exchange to take care of them, then you do not truly “own” your bitcoin (BTC). But self-custody carries with it a weight of responsibility and a level of technological expertise that some newcomers to the Bitcoin protocol can find intimidating.
Fedi’s overarching objective is to overcome three of the biggest obstacles to bitcoin adoption today – lack of secure custody, privacy and scalability – all of which are addressed by the open-source Fedimint bitcoin custody protocol. Fedi’s mobile app will be a bitcoin wallet built on top of that protocol, which means, in theory, the app may turn out to be a viable solution for securing your bitcoin.
“Fedi is global bitcoin adoption technology. We want to see billions of people using bitcoin. Once we get to a million users, it's only a matter of time before we get to 10 million, then 100 million, then a billion,” said Fedi CEO and co-founder Obi Nwosu.
Fedi’s three founders, Nwosu, Eric Sirion and Justin Moon, are prominent members of the bitcoin community. Nwosu founded and operated U.K.-based bitcoin-only exchange, Coinfloor, until its recent sale in late 2021. Sirion has a background in computer science and prior to co-founding Fedi, received sponsorship from Bitcoin infrastructure firm Blockstream to conduct research on Fedimint. Moon is a popular Bitcoin developer and educator known for his Bitcoin courses and bootcamps. The app is set to launch in early 2023.
What is Fedimint?
“Fedimint” is an abbreviation of the words, “federated” and “mint.” The concept was originally conceived in 1983 by renowned computer scientist and cryptographer, David Chaum, and later used to create e-cash, a primordial, albeit centralized, version of today’s cryptocurrencies. E-cash used blind signatures to preserve user privacy. Blind signatures allow a sender’s message to be cryptographically blinded (or hidden) before being digitally signed by the recipient, thereby preserving the sender’s anonymity.
Fedi’s other co-founder, Sirion, was fascinated by these early developments and contemplated adding two key components from the Bitcoin ecosystem to Chaum’s e-cash protocol. The first component was the idea of federations – pre-existing groups of Bitcoin users with high levels of trust in each other (for example, family members, friends, and community groups). The second component was the use of multisignature functionality to solve e-cash’s centralization flaw. Incorporating these components into Chaum’s original idea gave birth to Fedimint – a community-based Bitcoin custody protocol.
“We already have a protocol for decentralized censorship-resistant money – that’s Bitcoin. We also have a protocol for decentralized censorship-resistant payments – that's Lightning. The final missing piece is a decentralized, censorship-resistant custody protocol,” said Nwoso. That protocol is Fedimint.
Fedimint accepts bitcoin deposits and returns minted tokens to the federation member making the deposit. The number of tokens minted for each bitcoin is based on a predetermined rate set by the federation. Tokens can then be used off-chain to pay for goods and services, or simply exchanged between members. This off-chain activity allows for scaling beyond Bitcoin’s on-chain constraints.
Furthermore, like its e-cash predecessor, Fedimint provides full anonymity by using blind signatures to ensure users cannot be linked to the minting process that created their tokens.
Finally, the protocol uses multisignature functionality to distribute wallet custody among trusted federation members called “guardians.” Imagine an extended family with 20 members, some of whom are technologically sophisticated. If most of the members are uncomfortable with private key management, they can simply delegate that function to their more tech-savvy kin, who would then assume the guardian role. This solves the problem of cost and complexity inherent in traditional self-custody methods that often require running a full node and using a hardware wallet. It also solves the problem of trusting third-party entities like centralized exchanges that often prioritize profits over security.
Thus, Fedimint provides an intermediate solution that uses pre-existing trust structures to create what Nwosu calls, “community custody.”
“Billions of people are being excluded from accessing Bitcoin, due to exchange regulation. The reason exchanges need to be regulated is because if they're not, they're more likely to disappear with people’s money or get hacked. Then you have billions more being excluded from first-party custody due to cost and fear of complexity,” Nwosu said.
Community custody and hyperbitcoinization
Hyperbitcoinization refers to a scenario when bitcoin becomes the world’s default monetary system. According to Fediment’s team, self-custody is too costly and complex to accomplish that end. Similarly, third-party custody is too rigidly regulated to achieve mass adoption, especially in less developed countries. The only feasible solution is one that combines the security of self-custody with the simplicity of third-party platforms and eliminates cost, complexity and regulation.
Nwosi believes the mobile app Fedi is building will check all the boxes and bring the benefits of Fedimint to the masses. Fedi has even teamed up with global design company, Ideo, to ensure the final product incorporates human-centered design and is as simple and easy to use as possible.
“If you want to go to the moon, a bicycle won’t get you there. Neither will a car, or even a jumbo jet. You must re-architect and build a rocket,” Nwosi said.
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