BitGo Instant Guarantees Zero Confirm Transactions
BitGo has revealed BitGo Instant, allowing merchants and exchanges to accept zero-confirmation transactions. BitGo is so sure it its system that it promises to back any BitGo Instant transaction with its own funds.
Bitcoin is often called instant, but it isn’t. While a bitcoin transaction will usually show up on the blockchain a few moments after it is sent, it takes roughly ten minutes for a miner to confirm the transaction. Even that isn’t enough to completely solidify a bitcoin transaction. A transaction can still theoretically be double spent until six confirmations have taken place, a process that can take over an hour.
The double spend attack has plagued digital currencies well before bitcoin existed. The double spend attack is when a user spends their balance more than once. In bitcoin, this can be done by submitting a transaction and then before it propagates through the entire network and then submitting another transaction elsewhere. Eventually, both transactions will propagate the network and the one on a shorter version of the blockchain will be deemed invalid. By that time, whatever goods or services that were given in exchange for the now invalid transaction, may have already been spent.
BitGo Instant addresses this issue by utilizing its existing multisignature technology. BitGo is a leader in multisignature Bitcoin wallets. As with its regular multisignature wallet, with BitGo Instant, the user holds one key, BitGo holds another and the last key is held by a third party service. Currently, that third party is Keyternal, who has been working as a Key recovery service for BitGo and its customers.
Every transaction from BitGo Instant wallets require two signatures. A typical transaction with BitGo Instant will be signed by the user and BitGo. In this case, BitGo’s signature will also act as a guarantee. If the user then tries to spend that same bitcoin elsewhere (in a double spend attack) they will need to get the key from Keyternal, who will then alert BitGo. At that point, BitGo will stop guaranteeing that wallet’s zero confirmation transactions.
BitGo is so confident in their system that they are backing zero confirmations with their own money. BitGo CTO Ben Davenport spoke to CoinDesk about the process:
“When someone wants to send an instant transaction, we do a certain amount of risk checks. We create a guarantee that is cryptographically signed by us that rides along with the transaction”
Davensport also stated, via Bitcoin Magazine, that this is different from BitGo’s insurance. BitGo’s insurance only covers actual thefts from their wallets, BitGo Instant is being backed by BitGo itself.
Bitcoin’s big advantage over legacy financial systems is that it eliminates a significant amount of what is called “friction.” Friction are things that slow down or lessen a financial transaction (i.e. fees and delays). While Bitcoin greatly lessens that friction, the confirmation time issue is still a significant issue, something BitGo Instant seems designed to fix.
BitGo Instant is launching with over ten partners. They include some of the largest exchanges like BitFinex, Bitstamp and Kraken. With BitGo Instant, users should be able to move bitcoin from these exchanges quicker, potentially increasing arbitrage opportunities.
However, BitGo Instant isn’t just about day trading, it has immense potential for point of sale purchases. FoldApp, a popular bitcoin service that offers 20% off of Starbucks purchases, is one of the launching partners of BitGo Instant. By using BitGo, Fold can give its users their Starbucks credit instantly, without being at risk of a double spend attack. In theory, any physical store or ATM that accepts bitcoin, should be able to accept zero confirmation transactions from BitGo Instant wallets without fear of a double spend attack.
Of course, this only applies to bitcoin users and bitcoin services that use BitGo’s wallets. The confirmation friction will continue to plague bitcoin until and only if a universal solution is created. Nevertheless, BitGo’s partnerships are not insignificant and will likely increase overtime. In addition, according to the press release, any business can use the BitGo Instant API, making it safe for them to accept BitGo Instant transactions without actually using a BitGo Wallet.
If enough services start accepting BitGo Instant transactions, or if companies like Coinbase start making similar and competing services, we could see the user-experience for the average bitcoin user increase significantly, even without a single universal solution.
Other significant services signed up for BitGo Instant include Shapeshift, Genesis Trading and Unocoin.