Bitcoin: Hardware or Software? That Is The Question

Two pieces of hardware came out for the Bitcoin ecosystem that have caught the attention of many eyes. When walking into a cryptocurrency forum or news feed, you can’t step into these arenas without seeing a thread or ten about 21INC’s Bitcoin computer. Or just recently, KeepKey released a off shoot of the “Trezor-style” hardware wallet for $240 USD. The question remains, are these devices fitting for the young bitcoin environment at hand, and at what price?

Also read: Russia: Using Bitcoin is a Criminal Liability

The KeyMasters

KeepKey-LargeIt always boils down to the age-old question: “Hardware or Software?” With hardware, you can hold it, plug it in, and without certain features of hardware, software would not exist. Software is not tangible, but it is the key player on the team; without software, you wouldn’t be able to optimize the phones, tablets, and computers you use every day.

With KeepKey and hardware wallets, the age old question is probably yes to hardware — and, quite frankly, why not? KeepKey stores private keys in a device that acts as cold storage. Just as paper wallets are created for bitcoins, why wouldn’t you like the idea of a hardware wallet?

527682956_640KeepKey’s cold storage hardware wallet is more expensive than rivals Trezor and Ledger. However, the model looks very well-made and has an OLED display with active confirmation buttons on the device itself. The wallet connects via USB cable, works with Google Chrome extensions, and claims to be 100% malware and virus proof. Founder Darin Stanchfield feels the team’s product is simple to use, saying:  

“Our security model was designed to ensure that the user always has complete control over their private keys, We feel that relying on trusted third parties degrades the security and privacy that the bitcoin ecosystem offers.”

— Darin Stanchfield, KeepKey

The popularity of hardware wallets has grown quite a bit since the days of past hacks and bankruptcies, such as the Mt. Gox loss. These wallets give your bitcoins a safe and secure physical hang out, and most are supported by compatible wallet services like Mycelium and Electrum. Security-wise, it seems to be a no-brainer; the model looks sleek, although some people may have a problem with its $239 price tag compared to competitive models.

21 Questions for the ‘21 Computer.’

4592385166_59c5d2c9c0_zThe question of Hardware vs Software comes into play with 21INC’s offering of the “first Bitcoin computer.” Is a $400 piece of hardware via Amazon worth it when it could also be distributed through software or devices we already have? Many were perplexed in March 2015, when 21INC — co-founded by Andreessen Horowitz and partner Balaji Srinivasan — told the world that it raised roughly $116 million in venture capital, with no one knowing what the company was about. Clues were revealed early on, with pictures of toasters. Later, the company let the world know its plans to inset ASIC technology into objects like routers, toasters, set-top boxes, and chipsets. 21INC also worked with Qualcomm and Intel on the development of a new design called “split chip” technology. The startup revealed its excitement to many, as it wanted to give everyone inclusion to the bitcoin network — not just Silicon Valley. Co-founder Matthew Pauker told the Wall Street Journal:

“Bitcoin is going to change the way that people and businesses and even machines interact with each other,” he says. “But for Bitcoin to realize that vision we need mass adoption. It can’t just be for Silicon Valley.”

Matthew Pauker, 21INC

21inc4b._SR700,525_The “toaster,” or the “ 21 Bitcoin Computer,” is now available, and will be shipped in November from the company’s headquarters. The small device, which is a Raspberry Pi minicomputer, has a custom 21INC mining chip that allows a small amount of mining to be done from any practical, personal space. Master coders and junior developers are especially encouraged to use this product, but anyone can use the small computer to develop cool features. The device itself is said to be recommended for the development environment, acting as a toolset for the Internet of Things. 21INC’s dream seems to be a  theatrical display of a chipset technology becoming a raging phenomenon offered in toasters, USB chargers, and mobile phones — everywhere. Ben Horowitz, co-founder of Andreessen Horowitz told the WSJ:

“I’m very excited about it. The thing that’s completely missing that I think would make the Internet better would be machine-to-machine payments. It’s just amazingly hard to do right now.”

But on the other hand, comes the software debate and the fact that the same hardware minus the “chip work” can be produced for ⅓ of the price. It has been said that the Bitcoin protocol doesn’t require “special” hardware, and can be operated in the software arena more fittingly. Software and cloud computing is making hardware less of a necessity in this day in age. Cloud and software-based services are the tech sector’s largest commodities right now, and their migration is happening very fast. Even Horowitz’s website states: “Software Is Eating the World.”

As technologies accelerate, it is said by some innovators that it’s the software that pushes the envelope. Advocates of the software-first approach say that “software is eating hardware,” and products are only as good as the experience that gives them life. Adam Macbeth, who helped develop innovative concepts such as the iPod and FiftyThree’s Pencil, holds this belief. Macbeth described to firstround.com that software is everything, stating:

“People think that they can build a game-changer with some really great industrial design and packaging, but that’s not the case anymore, Incredible industrial design is increasingly non-optional, what really matters is an equally beautiful software system that spans mobile, desktop, and more. It’s something that takes a lot of thought to get right.” 

In the bitcoin world, any software or device must be applied to doing algorithmic computations. With mobile phones being a very strong catalyst for Bitcoin, this device seems to be the most optimal for a large network with software as the dominant driver for all of our mobile networks. Also, most of these devices — besides large phones and tablets — are becoming increasingly smaller, shrinking to a point where everything becomes a “chip.”

120319_ Charlie Shrem (CEO bitinstant) with a Bit Coin, Bitinstant 20 West 23rd. st., NY, NY, JC Rice Exclusively For Sunday

So what does this mean for these companies trying to end the hardware vs. software battle which has raged since its inception in the early eighties? Hardware devices such as Ledger, Trezor, and now KeepKey have been praised as the reliable gateway to stronger security. However, are these devices stronger than a piece of paper? What happens in the event that the companies go bankrupt or close their servers, will it be that easy to migrate millions of keys over to another wallet? Will 21INCs mini-bitcoin-computer be anything more than a ras-pi with some stealth marketing? If you were a junior developer with an internship at Intel, IBM, or Cisco, and loved cryptocurrency, is this the tool-box for you? Some think users with little knowledge of operating the command line won’t be able to cope with this machinery, or wouldn’t even want to. The hope is for a simple software or cloud-based user interface for the everyday person. So a few in the crowd are unsure of 21INCs latest offering and whether or not its services can match that spontaneity.

Vitalik Buterin at Ethereum says:

“So you’re paying $399 upfront and getting $0.105 per day or $38.3 per year, and this is before taking into account network difficulty increases, the upcoming block halving (yay, your profit goes down to $0.03 per day!) and, of course, the near-100% likelihood that you won’t be able to keep that device on absolutely all of the time. I seriously hope they have multiple mining chips inside of their device and forgot to mention it; otherwise you can out compete this offering pretty easily by just pre loading a raspberry pi with $200 of your favorite cryptotokens.”

PRODPIC-685They all could be wrong, and it could rage like the many hardware devices before it. Where would we be without our MP3 players? Probably still using a Sony Discman and having a back seat full of CD books. Someone developed a device to hold all of your songs without the clutter. So, hardware is here to stay, and software can’t come to life without it, but some feel custom Bitcoin hardware isn’t the right avenue for the network, as most want it to run on all devices and any platform.

ResizedImage869285-Selection-381The best part of the story is that these products are not yet available to the public. It’s way too early to criticize components and physical products before availability. The same goes for software. Bitcoin security is needed, and hardware wallet products offer a fantastic service by protecting people’s keys, but are they necessary? Most people should know that 21INCs idea could catch fire and that it’s not just about the tiny little mining chip built inside covering ROI. The computer could eradicate the internet advertising model by substituting micropayments as well as add identification services ending the useless friction of passwords and login credentials. However, this is only a big ‘if’ and ‘when’ something like 21INCs computer catches on.  

What do you think of this hardware and software debate? Let us know in the comments below!


 

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