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Coinbase files patent for freeze logic cryptocurrency wallet security

The invention aims to add a fresh layer of security to wallets used directly for merchant payments.

Coinbase has filed a new patent which describes technology intended to improve the security of cryptocurrency wallets and also permit the secure, direct payment of cryptocurrencies to merchants.

The cryptocurrency exchange's patent filing has been submitted to the United States Patent and Trademark Office (USPTO).

Coinbase's patent application, number 10,050,779, says that "it may be a security concern for users that the private keys of their Bitcoin addresses may be stolen from their wallets, [and] existing systems do not provide a solution for maintaining security over private keys while still allowing the users to check out on a merchant page and making payments using their wallets."

The patent describes a "key ceremony application" which creates encrypted key bundles together with an operational master key.

The operational master key is used for private key encryption during the checkout process, while an operational private key is used for private key decryption for transaction signing when a payment is in process.

The patent reads:

"Transactions do not explicitly identify the payor and payee by name or wallet. Instead, a Bitcoin transaction transfers ownership to a new address, referred to as a "Bitcoin address".

The Bitcoin address is derived from the public portion of one or more cryptographic key pairs. The private portion of a key pair is not disclosed to the public.

To send Bitcoin sent to an address, a user broadcasts a payment message that is digitally signed with the associated private key."

The key bundles also include TLS-based keys for authenticated requests during transactions which require the creation of API keys which permit a web application to "communicate with a service and to unfreeze the system after it has been frozen by an administrator."

TechRepublic: Why cryptocurrency needs to get more user-friendly to achieve mainstream success

An interesting facet of the patent is the introduction of freeze logic. Freeze logic aims to prevent the potential exposure of private keys during checkout by a means of allowing suspicious transactions to be frozen by administrators.

A database contains addresses and private keys stored in association with each other. Should an unsigned transaction request for payment be made, even after a master key is loaded, the system can suspend payments and transactions, as well as detect frozen states.

In the case of cyberattacks in which fortunes in cryptocurrency can be stolen within seconds, this may further help to secure investor funds.

The cryptocurrency field was once based on decentralized transactions, trading, and a lack of monopoly when it comes to technology. However, according to Coinbase co-founder and CEO Brian Armstrong, patent filing is a necessary evil to keep cryptocurrency and blockchain-related technologies out of the hands of patent trolls -- especially as such trolls are likely to appear in the future in attempts to extract "hundreds of millions of dollars" from the platform.

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In a blog post, Armstrong said:

"The Bitcoin community was founded on ideals of openness and decentralization, so software patents feel especially bad in our industry. But that is not going to stop other large companies from going after Bitcoin patents and using them offensively.

By refusing to file Bitcoin patents you aren't helping Bitcoin or "doing the right thing," you are simply putting your own company at risk."

See also: Coinbase Bitcoin Cash insider trading inquiry reaches an end

In July, Coinbase closed the book on an internal investigation into potential insider trading.

The scrutiny surrounded the addition of Bitcoin Cash (BCH) to the platform in December 2017. Just before the launch, the price of BCH skyrocketed, leading some to believe that Coinbase staff were trading on the knowledge of the new addition in preparation for the listing.

Coinbase was forced to temporarily prevent BCH trades. Following the investigation, the cryptocurrency exchange said there was no evidence of wrongdoing.

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