Bitcoin adoption has rapidly outgrown the maturity and sophistication of the infrastructure and services that exist to support it. This was a nuisance when most bitcoin users were highly technical and therefore comfortable creating homegrown solutions or implementing complex guidelines for essential things like asset security. With mainstream consumers now flocking to bitcoin, it’s a recipe for disaster.
If Mt. Gox couldn’t account for and secure its bitcoin holdings, what chance does Joe Consumer have?
BitGo has been one of the best solutions to the consumer security problem since launching the industry’s first multi-signature Web-based wallet in August of last year. The company created a crypto-wallet that operates much like a safety deposit box with multiple keys – in this case three, requiring two to complete all transactions.
BitGo holds one key that is required to open the wallet and relies on strong passcodes and two-factor authentication to verify user identity. The consumer must then produce either a digital key, stored in BitGo’s encrypted cloud, or a printed paper key, typically stored in the user’s physical safe or safety deposit box. This three-pronged approach makes bitcoin theft and hacking a much more unlikely event than traditional single-key wallets. It also means that a single lost key does not render a user’s bitcoins unrecoverable.
While adoption has been good, there’s a limit to the speed which the company could grow with a consumer-facing product alone. There’s also a limit to the business potential. With that in mind, BitGo today launched an enterprise version of its multi-signature bitcoin security solution. This way merchants, exchanges, wallets, and other key nodes along the bitcoin network can quickly implement these advanced security measures.
BitGo already has partnerships with a number of prominent bitcoin enterprises, including BitPay, Coinbase, ExpressCoin, Gyft, and the Sator Square hedge, each of which either recommend it to their consumers or use the product to operate their back-end.
The company’s enterprise offering goes beyond simply a virtual safety deposit box. BitGo built spending and velocity limiting tools, user management functionality, and 24×7 monitoring capabilities. The company has also created what it calls BitGo Cold Key, a process for generating and storing multi-sig wallets offline.
“Until now, many enterprises faced challenges using Bitcoin due to the risks associated with securing and accessing Bitcoin assets,” says BitGo co-founder and CEO Will O’Brien. “BitGo Enterprise was designed from the ground up to give organizations the power to securely store and effectively manage Bitcoin holdings.”
BitPay will begin promoting BitGo technology to its 27,000 merchants, according to CEO Tony Gallippi, who said in a statement on today’s launch, “I’d like to see all of BitPay’s merchants protected by multi-sig wallets by the end of 2014.” Gyft CEO Vinny Lingham similarly calls BitGo a “bank-grade solution.”
BitGo’s consumer offering has been and will continue to be free to use. The company may add future paid consumer offerings like insurance or credit, O’Brien says, but plans to keep the wallet service free as a way of raising awareness and simultaneously helping elevate the bitcoin ecosystem. Enterprise customers will pay the company a security-as-a-service licensing fee. BitGo enterprise will launch initially as an invite-only product and will ramp quickly to general availability via a self-serve API, O’Brien says.
BitGo has raised an undisclosed sum of seed funding from investors that include Bridgescale Partners, Bill Lee (Remarq, Tesla, Yammer), and Eric Hahn (Netscape, Red Hat, Proofpoint). The company is also advised by Yammer founder David Sachs and bitcoin super-angel and serial entrepreneur Brock Pierce.
The company’s founding team is equally impressive. O’Brien, a software engineer and MBA, is a former SVP with Big Fish Games and a GM with TrialPay. His co-founder Mike Belshe is a former Google and Microsoft software engineer who was a founding member of the Google Chrome team and who founded and sold Lookout Search to Microsoft. O’Brien and Belshe have built a lean five-person team consisting of veterans from online security, digital currency, and financial technology, according to O’Brien.
BitGo is already seeing competition in the multi-sig bitcoin security space, but the company feels that it has a significant technology and business development head-start. “Our multi-sig technology is very strong and is patent-pending,” O’Brien says. “It’s not something you can just whip up in a weekend. We also have advantages in terms of our head-start around customer acquisition and learning.”
There’s no questioning the growing excitement around bitcoin. But the chorus has grown equally loud demanding sophisticated, yet easy-to-use security solutions that make bitcoin more accessible to mainstream merchants and consumers.
Mt. Gox was a painful example of what can happen when too much trust is placed in a third-party, something many consumers were forced to do based on the absence of alternative solutions. BitGo, on the other hand, not only offers robust security developed by an experienced team, but also alleviates the problem of placing excess trust in a third-party – something bitcoin was designed to avoid. Without one of the consumers’ two keys, BitGo cannot spend or transfer any of its customers bitcoins. The inverse is equally true.
“Most of the mainstream press is looking at Mt Gox as a cataclysmic event,” O’Brien says. “But we see it as a great opportunity to educate everyone on best practices.”
It feels as if we are entering the Bitcoin 2.0 era. Now that bitcoin is a multi-billion dollar ecosystem, it demands tools and services built with this level of sophistication in mind, rather than hobby businesses that grow large based on luck and a lack of competition. BitGo seems very much like this second-generation type of company and the timing couldn’t be better.