[Bitcoin-development] Update on mobile 2-factor wallets

[Mike Hearn <mike@plan99.net>]

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Here is a summary of current developments in the space of decentralised
2-factor Bitcoin wallets. I figured some people here might find it
interesting.

There has been very nice progress in the last month or two. Decentralised
2FA wallets run on a desktop/laptop and have a (currently always Android)
smartphone app to go with them. Compromise of the wallet requires
compromise of both devices.

Alon Muroch and Chris Pacia have made huge progress on "Bitcoin
Authenticator", their (HD) wallet app. The desktop side runs on
Win/Mac/Linux and the mobile side runs on Android. Sending money from the
desktop triggers a push notification to the mobile side, which presents the
transaction for confirmation. Additionally the desktop wallet has a variety
of other features like OneName integration. It's currently in alpha, but I
suspect it will be quite popular once released due to its focus on UI and
the simple mobile security model. I've tried it out and it worked fine.

https://www.bitcoinauthenticator.org/
https://github.com/cpacia/BitcoinAuthenticator/commits/master    (mobile)
https://github.com/negedzuregal/BitcoinAuthWallet   (desktop)

Bitcoin Authenticator uses P2SH/CHECKMULTISIG to provide the 2-factor
functionality. However, this has various downsides that are well known:
 less support for the address type and larger transactions that waste block
chain space + result in higher fees.

To solve this problem Christopher Mann and Daniel Loebenberger from Uni
Bonn have ported the efficient DSA 2-of-2 signing protocol by MacKenzie and
Reiter to ECDSA, and implemented their own desktop/Android wallet app pair
showing that it works and has good enough performance. This means that P2SH
/ CHECKMULTISIG is no longer required for the two factor auth case, and
thus it's as cheap as using regular addresses.

https://github.com/ChristopherMann/2FactorWallet
https://eprint.iacr.org/2014/629.pdf

Their protocol uses an interesting combination of ECDSA, Paillier
homomorphic encryption and some zero knowledge proofs to build a working
solution for the 2-of-2 case only. Their app bootstraps from a QR code that
includes a TLS public key and IP address of the desktop: the mobile app
then connects to it directly, renders the transaction and performs the
protocol when the user confirms. The protocol is online, so both devices
must be physically present.

Their code is liberally licensed and looks easy to integrate with Alon and
Chris' more user focused work, as both projects are built with Android and
the latest bitcoinj. If someone is interested, merging Christopher/Daniel's
code into the bitcoinj multisig framework would be a useful project, and
would make it easier for wallet devs to benefit from this work. I can write
a design doc to follow if needed.

Currently, neither of these projects implement support for BIP70, so the
screen you see when signing the transaction is hardly user friendly or
secure: you just have to trust that the destination address you're paying
to isn't tampered with. Support for sending a full payment request between
devices is the clear next step once these wallets have obtained a
reasonable user base and are stable.

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