Startup Revolutionizes Bitcoin Custody Concept and Raises $4 Million

Charlie Taylor


Startup Fedi has developed a “second-party” Bitcoin custody solution that, in theory, can help lay users with security and fund sovereignty issues, avoiding centralized custodians, as in many cases.

Fedi Raised $4 Million in Investment Round, Made Unusual Blockchain Announcement

The software development company Fedi Inc, which specializes in Bitcoin-related open-source solutions, announced on Tuesday (July 19) that it has raised $4 million in a Seed Round of private investment to fund its Fedimint project, a protocol for decentralization. custody of BTC. The startup’s announcement was also quite unusual, having been recorded forever on the Bitcoin blockchain, in block number 745521, with a message in the OP_RETURN of the txid transaction: 425c6af7d3017241ddc311238e594cf1c14533529e11ab71a405f6dd3671b0df.
OP_RETURN, Decoded: Fedi has arrived“Fedi has arrived” Source: Blockchair

“Fedi has arrived”

Fedimint: Bitcoin Custody Federation

The “flagship” or, in English, the “flagship,” of Fedi is the open-source protocol called Fedimint, which brings the concept of federated bitcoin custody. And from there comes the first part of the protocol name. Fedi – of federation.Passfolio
Mint (coinage) concerns the model of IOU (“I Owe You”) applied in the protocol, where a number of users create a kind of “federation” for mutual custody of bitcoins of each of the federates and, in exchange, they receive tokens that work as a kind of “bitcoin voucher” that can be redeemed from the protocol at any time, with the consent of the parties involved. Something very similar occurs in Lightning Network (LN), with openings and closings of channels. As a first impression – which could be wrong, do your own research – the main difference between Fedimint and LN is that: in the firstIOU transactions occur only on a network toilet and licensed, among the “federates”. While on Lightning, they take place on a public, semi-permissioned network – nodes do not need authorization to participate in the network, but need permissioned paths to transact with other peers that do not have a direct connection through a channel. As explained in Bitcoin Magazine, Fedimint makes it possible for a trust group (trust is needed, in this case) create a multi-sign wallet that becomes responsible for the custody of bitcoin for that group. Each member of this federation receives, after depositing into the wallet, a Fedimint token that is minted in proportion to the BTCs deposited. This allows the values ​​to be redeemed at any time, after signing by the other members. Both the minting of IOU tokens and the redemption of bitcoins depend on a minimum number of signatures to take place. For example, there may be 2-3 wallets, where 3 users have 3 different private keys, but only 2 keys are needed to move the wallet or mint tokens. There may also be 3-5 wallets, following the same logic as 5 private keys, but 3 needed to sign transactions.

What is the advantage of this BTC custody?

According to Fedi, this type of bitcoin custody allows users who trust each other to share the security of their bitcoins, avoiding “single-party” and “single-party” custody. third-party services, such as exchanges. Fedimint called the concept of second-party custody, as an intermediary point joining positive points of both previous ones. Some bitcoiners were skeptical of Fedi’s solution, as was the case with @shesek, in the thread below: He raised some criticisms regarding an alleged “false advertising” by the startup, in the table released in the official announcement post of the protocol. The table has already been replaced by another one.
Comparative table on bitcoin custody between options: Fedmint, third parties, exchanges and hardware wallets.Source: Fedi The user also questioned the advantages, since something similar can be done without protocol support, by entrusting the seed back-up (in a paper, for example) to a family member. Although this is a very different situation, as with the unique private key the family member could steal the funds, while with Fedimint it would need to conspire with at least one other family member holding a different private key.
The project is still experimental and we will possibly see favorable, contrary and neutral positions on the solution.
In my opinion, self-custody is the safest way to hold bitcoin and other cryptocurrencies and is irreplaceable, but it is a known fact that many users do not know (or do not want) to take full responsibility for their assets, entrusting the custody of BTC to third parties, which generates a number of risk factors. So it may be that “federated custody” offers a superior experience, when dealing with a circle of known people and that the user already trusts in their day-to-day, different from “trusting” unknown third parties, whose incentives to keep safe funds are purely financial.
Know more: Mt. Gox – Bitcoin’s biggest black swan haunts the market with BRL 15 billion On the other hand, custody by contract (as with exchanges, for example), can offer legal protection to the owners of the funds in custody, enabling recovery in the future, with the aid of a court, as is happening with MTGOX, goes down the hack of 2014. See the timeline of the events of the largest bitcoin exchange that lost millions of its custodial customers. In any case, the concept of “second-party” bitcoin custody is an interesting one and only time will demonstrate the pros and cons of this solution. I want to know your opinion! join our crypto community on the Cointimes Discord server and let us know what you think about Fedimint. Buy and Sell Bitcoin and Other Cryptocurrencies on Coinext
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