Jack Dorsey's Block is building a sci-fi style crypto wallet to keep Bitcoin safe. Here's how it works

Block, the tech firm previously known as Square and led by Twitter co-founder Jack Dorsey, is developing Bitkey, a cutting-edge crypto key product. The company is expected to roll out the new hardware later this year.

Bitkey is a physical, hardware-based crypto key product that serves as a self-custody wallet. It's not your typical mobile app, but an actual piece of hardware that you can hold in your hand, and it's designed to put the keys to your digital assets squarely in your control.

Bitkey's business lead, Lindsey Grossman, in an exclusive interaction with Business Today says a team of engineers, designers and product managers have been working on the product for many months. "The Bitkey Beta program is the result of months of hard work and dedication from our team and the thoughtful feedback we’ve received from others in the industry as well as prospective customers," Grossman said.

"Our aim is to create a product that empowers customers to take control of their bitcoin in a secure, user-friendly way," she adds. Grossman noted that Block's CEO, Jack Dorsey, is also deeply supportive of the Bitkey project. His enthusiasm stems from the product's potential to put customers in control of their money as well as the program’s approach to developing in the open.

Grossman also showed the product to this writer over a video call. With its sleek, futuristic design, Bitkey seems like a gadget straight out of a sci-fi film. It's designed to be more than just a novelty, though. It has the potential to serve a critical purpose in the world of cryptocurrencies by bringing ownership transparency and self-custody amid increasing regulatory oversight worldwide.

Users can purchase Bitcoin on a crypto exchange and then transfer it to their Bitkey wallet. Any transaction or transfer from Bitkey beyond a set limit the customer sets must be approved by the Bitkey device. 

The user can transfer any amount to Bitkey and for money sent from the wallet, they can create a rule that any transaction above any amount they choose (let’s say $20) cannot be transferred out of the wallet unless the user also approves it by signing with the hardware and then tapping to the mobile phone. In this example, let’s say the user’s phone gets stolen and someone can access their mobile app. 

With this spending limit in place, only $20 is at risk; all the other money the customer has protected behind the additional signing requirement of the hardware which they are recommended to keep safely tucked away separate from their mobile phone on a regular basis. It's a bit like two-factor authentication banks use in the case of mobile banking, under which transactions happen only after the code that account holders receive through email or SMS is entered.

Grossman says self-custody wallets such as Bitkey put the keys in the user's hands and ensure self-custody of their money. She explains that exchange-hosted wallets hold the keys on users' behalf, so the user never really owns the keys. Citing the collapse of American crypto exchange FTX last year which resulted in many investors losing their money, Grossman claims a tool such as Bitkey can protect investors in similar scenarios.

"As we saw with the FTX disaster, when things go bust, you realise you don't truly own your own money. That's why we wanted to build something that puts the keys in the hands of customers and offers them self-custody," Grossman explains. 

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The team at Block has been publicly releasing details of the product on their development blog. The minimalist design of Bitkey belies its functionality. With no screen interface on the hardware itself, Bitkey's exterior is sleek and uncluttered. The only interactive element on the device is a fingerprint sensor. For executing a transaction when the amount surpasses the user-determined spending limits, the user simply initiates a command on the mobile app and then confirms the transaction by touching the fingerprint sensor on the device and tapping the device to the mobile phone via NFC.

NFC, which stands for near-field communication, allows two devices to talk to each other when they are close together. The product is what the team at Block calls a 'two out of three multi-signature Bitcoin wallet'.

Grossman explains: "We call it a two out of three multi-signature Bitcoin wallet, where there's three keys. One key is on your mobile phone, which you access via the mobile app. The second key is on the hardware device (Bitkey). And the third and final key is on Block's server. In this multi signature design, two keys are always needed to move money. The customer has two keys in their hands (mobile app and Bitkey), and Block has one on back end."

Grossman underscores that with Block holding only one key, it can never independently facilitate the movement of money, further reinforcing the product's commitment to the principle of self-custody.

While Grossman refused to share the possible price of the product, Block has been making strides in ensuring that there are takers for the device when it gets launched later this year. Apart from making it available to interested users of the Cash App (Block's subsidiary), Block has also signed a deal with Coinbase, one of the largest crypto exchanges in the world.   

According to the company, the 'transfer' and 'buy+transfer' features with both partners will see a staggered rollout since the product is in a beta phase. But, once live, the company says customers will be able to buy bitcoin with their choice of exchange partners and immediately transfer their bitcoin to self-custody with Bitkey.

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