Tapsigner Bitcoin Hardware Wallet: Security Meets Convenience?

Coinkite’s new credit card-like bitcoin hardware wallet aims to unite affordability with convenience to scale cold storage to a broader market worldwide.

Bitcoin company Coinkite has launched its newest hardware wallet, Tapsigner, in an attempt to facilitate cold-storage bitcoin self-custody.

The product, which resembles a credit card more than traditional hardware wallets, comes at $40 and aims to serve as a more intuitive Bitcoin-signing device to onboard a wider range of people around the world onto more secure bitcoin self-custody setups.

Challenges In Bitcoin Self-Custody

Bitcoin self-custody isn’t easy. It has come a long way over the years but it’s arguably still far from being intuitive.

Hot wallets, the ones in which the private keys remain “hot” online in a phone or computer, are perhaps the most popular bitcoin wallets given their convenience. The user just needs to download an app into their phone, create the wallet, jot down the recovery words — and voilà, it’s ready to be used. The tradeoff is of course security: – being connected to the internet makes this setup more vulnerable to hacking, theft and other attacks.

The alternative, cold wallets, keep the private keys “cold” offline, increasing the security but at the expense of usability. Cold-storage solutions typically require the user to undergo many more steps to move their bitcoin. Even though that might be a feature rather than a bug for larger holdings, a less fluid transacting experience can be a pain for smaller stacks of bitcoin.

So, what is the solution?

Tapsigner: A Contender For The “Lukewarm” Middle Ground

Coinkite’s Tapsigner tries to bridge the gap between the hot and cold storage worlds with a more intuitive user experience.

The new product, which has already started shipping to consumers, brings a secure element –– the security chip inside hardware wallets –– in an NFC card. Not only does this enable better transportability as it’s the size of a typical credit card but also allows users to interact with their bitcoin holdings in an already familiar way –– tap to pay, or in this case, tap to sign.

In the background, Bitcoin transactions work in phases. First, the transaction is constructed by having the user –– or application –– select the inputs (the addresses sending the bitcoin), the amount to be sent, the amount to be paid in fees and the outputs (the addresses receiving the bitcoin). Then, the owner of the inputs needs to sign the transaction; philosophically, this is the owner of the funds saying, “I own this bitcoin and authorize this transaction.” The transaction is then broadcast to the peer-to-peer network so that nodes can check its validity.

While there are risks associated with every step in the process of building, signing and broadcasting a transaction, signing is arguably the most important one as it directly approves the movement of funds. This is where Tapsigner comes in. The card aims to take what is good about hot wallets –– convenience –– and join it with what is good about cold storage –– security –– in a lower price tag than for traditional hardware wallets.

When used with a hot wallet, for example a phone wallet, Tapsigner maintains the transaction building and broadcasting processes as a responsibility of the phone while taking on the signing burden –– providing more security compared to pure hot storage and more convenience than the traditional cold storage one would set up for their life savings. It’s the middle ground where more frequent transactions can borrow the security of a hardened cold-storage setup.

Software Wallet Compatibility

Since Tapsigner purely signs transactions, it relies on a software wallet. However, not every wallet is compatible with the card.

At the time of writing, users can leverage Nunchuk, the bitcoin wallet famous for its multi-user approach to multisignature, to have the Tapsigner as the key for a single-sig, a key in a multisig, or both. As any private key, the card can be used in a multitude of ways with different wallet structures.

Software wallet options other than Nunchuk will be available soon, and likely the next to become fully compatible with Tapsigner is Hexa Wallet. The popular BlueWallet currently has an open PR to merge NFC capabilities into the project.

Getting Into The Weeds

Tapsigner comes without private keys. The card leverages the Bitcoin cryptography library in its secure element to generate the keys before first use with the help of the software wallet. The user can let the wallet provide entropy (randomness necessary to create a “good” private key) or alternatively provide it themselves. The card combines the entropy provided with secret entropy, that it picks itself, to actually generate the keys in the Tapsigner.

Private keys generated by the card abide by BIP 32 instead of BIP 39. In other words, the card adheres to extended private keys (XPRV) instead of the now popular mnemonic seed phrases. In practice, this means that users interested in backing up their private keys won’t be able to store their backup as 12 or 24 words; rather, an encrypted backup of the private key file is necessary.

When the user requests a backup of the private keys, Tapsigner encrypts the keys with the 16-byte key printed on the back of the card. Therefore, to recover the wallet, the user will need the encrypted private key file as well as the decryption key printed on the back of the Tapsigner. If the card is lost, the user can just leverage these two pieces of data to recover funds. (So, it might be worthwhile to write down the key on the back of the card on paper.)

While the software wallet might prompt the user to save the file in cloud storage, it should be noted that symmetric encryption –– used in this process –– isn’t as brute-force resistant as asymmetric encryption. Though chances of compromise are still low, users are incentivized to store the backup file offline and protect the encryption key.

Other (Future) Contenders

Other entrepreneurs and businesses are also interested in bridging hot and cold storage to find the best of both worlds. Jack Dorsey, the tech billionaire who cofounded Twitter and the financial services firm Block, previously known as Square, is perhaps the most famous of them.

Block announced plans to build a hardware wallet of its own in October 2021, and earlier this year detailed what its approach would look like. The plans include a mix of software and hardware products, which the user can leverage to reach their own optimal balance of security and convenience.

Block will make a mobile application and have it be the main interface for customer interaction, while the hardware wallet will be a simple, screen-free NFC device with fingerprint authentication used only to sign larger transactions on the app.

However, there isn’t yet a clear timeline of when Block’s product might be released.