One of the so-called “problems” with Bitcoin in the eyes of new users is the lack of instant confirmations. Transactions are usually viewed as generally secure after a few confirmations on the blockchain, but this can create a problem in situations where you want to buy something from a store and then leave without having to wait around for the next block. The time between new blocks has led to the creation of a number of different altcoins that boast confirmation times in the one minute range, but creating an entirely new cryptocurrency is not necessary when you’re just trying to speed up transaction times. There are also people who believe that unconfirmed Bitcoin transactions are relatively secure, but the fact remains that only confirmed transactions should be trusted. Let’s take a look at three different solutions for making instant Bitcoin confirmations both possible and generally safe.
The most common way that people are dealing with instant confirmations right now is through centralized services such as Coinbase. With this solution, the Bitcoin wallet provider is storing the private keys for customers and merchants, which means there is no risk of a double-spend between two of their users. As long as the transaction is between two Coinbase addresses, the transaction will actually take place off the blockchain. This means that Coinbase simply changes its internal account ledger rather than updating the censorship-resistant Bitcoin blockchain. These “off-chain” transactions also have the advantage of carrying no fees, which makes microtransactions a more realistic possibility. While this is the most widely used solution right now, it is also the most problematic. Bitcoin is supposed to be a completely decentralized currency and payment system, so creating a new version of PayPal on top of the blockchain defeats the purpose of using a cryptocurrency in the first place.
Multi-signature Bitcoin addresses are powerful tools that can be used to find a new balance of power between a company storing bitcoins and that company’s customers. When using a wallet such as GreenAddress.it, there are actually two signatures that are required to complete a Bitcoin transaction. The user must first initiate the sending of funds with their private key, and GreenAddress will then also sign off on the transaction after checking for any kind of suspicious activity. Not only is this an enhancement in the security department, but it also allows merchants to trust zero-confirmation transactions, as long as they also trust GreenAddress as a company.
Due to the fact that GreenAddress has to sign off on every transaction, any user who wanted to complete a double-spend would also need to have GreenAddress as an accomplice in the fraud. A time-sensitive lock is also added to the user’s wallet allows them to use their funds without a signature from GreenAddress after a certain period of time, which means the wallet provider could never prevent a user from using their own bitcoins.
One last solution when it comes to increasing the security of instant Bitcoin transactions is Open Transactions. With this option, bitcoins are stored on federated servers. This means that, much like Coinbase, transactions can be made off-blockchain without having to wait for anything to confirm every ten minutes. The main advantages of the Open Transactions model over Coinbase are that the servers storing the funds can’t forge receipts and there is not one central point of failure. Voting pools also offer an improvement over the more traditional option of having one entity store your coins. While a system of federated servers should not be considered as secure as a blockchain, it could be the perfect balance of security and convenience that many Bitcoin-related companies have been searching for over the past few years.
Photo via dtanist and Shutterstock.
Last modified: March 4, 2021 4:40 PM