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Fedi’s ‘Federated Wallet’ Could Bring Bitcoin to Billions

By Landon Manning

A common problem in making bitcoin (BTC) a truly worldwide new currency is the difficulty for underdeveloped regions to get access to hardware. However, Fedi’s radical new proposal for bitcoin custody could allow billions of people to become active in the international community at very low cost.

It’s an unfortunately mundane problem for the world of bitcoin: a decentralized, revolutionary currency that plans to build a whole new economic world outside the control of any state government, but the people who are most in need of an economic revolution often have little means to access it. Just to provide an example from 2022, the Central African Republic recently conducted research into the feasibility of adopting bitcoin as a legal tender and found that it would be very difficult to carry out this plan when only 11% of its citizens use the internet. 

For billions of people around the world, even if they have no plan to directly engage in bitcoin mining, the fact of the matter is that bitcoin is safest inside a hardware wallet. If a person doesn’t have this sort of hardware, their bitcoin would have to be custodied elsewhere, vulnerable to all sorts of fraud or outright theft. Bitcoin is revolutionary for its trustless nature and self-custody, but lack of access to these benefits could make it so much harder to convince skeptical audiences to bet on bitcoin. Why risk it?

Fedi and their new Fedimint (short for federated mint) system have been making major waves in the international Bitcoin community, proposing to totally upend the way that asset custody could work worldwide. Fedi’s custody system is based on the “Chaumian Mint” concept from the early days of internet cryptography, wherein a central entity called a “mint” or “bank” would issue anonymized IOUs in exchange for certain collateral assets. A cryptographic protocol ensures that the mint operators have little information about users redeeming an IOU for any of the possible pieces of collateral the bank would hold. This idea, before the days of cryptocurrency, never took off.

Obi Nwosu, Fedi’s CEO and co-founder, described how this plan was resurrected into the concept of a federated mint for bitcoin, which he hopes to see scaled to serve people around the world. This type of asset custody is distinct from self-custody, where a user manages bitcoin for themselves, and also different from third-party custody, where bitcoin is entrusted to a corporate entity as a type of transaction. Nwosu calls Fedimint a “second-party” custody system, where trusted community leaders are the main gatekeeper over a pool of bitcoin with multisig verification over transactions. In other words, the community members have control over how the bitcoin is dispensed from the gatekeeper’s custody device, so that no party can individually tamper with the funds of any other individual or the collective.

This radical solution still requires many things to ensure a smooth rollout, but Fedi has a lot of factors going for it in these early days. For one, considering that this second-party custody system would undoubtedly lead to a large volume of small transactions, the protocol will be intertwined with the Lightning Network from the ground up. The Lightning Network’s system of decentralized nodes and microtransactions of bitcoin makes it ideal for powering a system like this, worldwide. Another point of favor is that Nwosu has “the privilege and honor of working with some of the most prolific and accomplished activists in the world,” having specific people on point for outreach in Eastern Europe, Africa, Latin America, the Middle East and elsewhere. All these geographic regions could be extremely fertile ground for the next generation of Bitcoiners.

In short, combining ideas from early cryptography with the demands of a radically dynamic, global bitcoin economy might be the inspiration needed to massively disrupt the whole world and onboard billions to bitcoin. Fedi and its protocol are still in their infancy, hoping for a rollout in Q3, 2023, but the $4.2 million in seed money already accrued is bound to give the company a strong start. A world in which untold billions of new bitcoin users are reliant on the Lightning Network due to federated mint protocols is not going to materialize for some time yet, but the possibilities for Bitcoin and the entire planet are truly enormous.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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