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# Bitcoin custody and privacy technologies exploration

Fri, 06 Jun 25

### BitKey Discussion and Trade-offs

- BitKey implements 2-of-3 multisig setup:

- One key on BitKey device

- One key on phone

- One key in cloud (managed by Block)

- Key advantages:

- User-friendly interface

- Customizable spending policies based on amount

- Recovery options through emergency contacts

- On-chain visibility of funds

- Key limitations:

- Vendor lock-in - cannot export keys to other wallets

- Requires trust in Block/BitKey team

- Cloud key backup raises privacy concerns

- Marketing stance against seed phrases criticized by experts

### Seed Phrases (BIP 39) Benefits

- Enables wallet migration without on-chain transactions

- Represents private keys in human-readable format (2,048 possible words)

- Allows physical backup (metal plates, paper)

- Supports key sharing between parties

- Provides sovereignty over private keys

- Multiple wallets support BIP 39: Blue Wallet, Phoenix, Nunchuck, Coldcard, SeedSigner

### Privacy and Bitcoin Fungibility

- Privacy fundamental to Bitcoin protocol through private keys

- Collaborative transaction types enhance privacy:

- PayJoin (implemented in Bull Bitcoin, Cake Wallet)

- CoinJoin

- Silent Payments

- Atomic swaps

- Chain analysis limitations:

- Common input heuristic can be broken

- Transaction history becomes untraceable through privacy techniques

- Jurisdictional differences affect “clean” vs “tainted” Bitcoin definition

### Mining Decentralization Challenges

- Current issues:

- Silicon production centralization

- PCB manufacturing concentration

- Mining pool centralization

- Promising developments:

- New chip makers emerging (Brains, Block, Auradine)

- HashPools project using Cashu spec

- Ocean Pool experimenting with Coinbase transaction payouts

- CTV payment trees could reduce economic barriers for small pools

### Technical Innovations

- Block height: 900,052 (as of 06/06/2025)

- Bitcoin price: $104,275

- Sat/USD rate: 960 sats per dollar

- Key developments:

- BitVM enabling zero-knowledge proofs

- CTV (Check Template Verify) enabling vault constructs

- Key Teleport for secure configuration sharing

- Cashu integration with Lightning Network

### Future Considerations

- Post-hyperbitcoinization scenarios:

- Settlement layer vs cash-like instruments

- Need for privacy-preserving solutions

- Hardware production sovereignty

- Mining pool decentralization

- Development community collaboration:

- Cross-chain learning incorporation

- Open-source innovation

- Technical trade-offs evaluation

---
Avatar
Brian Hauck 7mo ago

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