Fedi Inc. announced the closing of a $4.2 million seed round. This money will go to developing the Fedi mobile app, which is expected to begin rolling out in Q1 of 2023. The app is being built to provide a user interface for Fedimint, Fedi’s open-source Bitcoin custody protocol.
Fedimint aims to decentralize and scale Bitcoin custody by leveraging Chaumian Ecash mints. That way, it hopes to overcome obstacles to Bitcoin adoption, namely the lack of scalability, privacy, and secure custody.
Fedi is a global Bitcoin adoption technology. We want to see billions of people using Bitcoin. Once we get to a million users, it's only a matter of time before we get to 10 million, then 100 million, then a billion.
Said Fedi CEO and co-founder Obi Nwosu.
Fedimint, an abbreviation for the phrase ‘federated mint,’ is inspired by David Chaum’s Ecash mints. Chaum is a renowned computer scientist and cryptographer. He developed Ecash mints in the 1980s to solve privacy issues that came with the digitization of money.
Chaumian Ecash was essentially an IOU bank note issued after depositing money into a bank. Anyone holding the note could go to the issuing bank and redeem it for the amount that was originally deposited. Therefore, it could be traded between people.
To ensure user privacy, Chaum’s Ecash leveraged blind signatures. This cryptographic technique hides the identity of previous owners of the banknote. It worked by cryptographically blinding (hiding) a sender's message before it was digitally signed by the recipient. That way, the sender remained anonymous.
Chaum’s Ecash can be thought of as a primordial version of cryptocurrencies. However, while it added anonymity to the centralized financial system, it did not attempt to break free from it. Centralization still played a massive role in the model.
Fedimint takes Chaumian Ecash and adds two key components: federations and multisignature (multisig) functionality. The former is based on the idea of second-party custody.
Second-party custody involves Bitcoin holders trusting tech-savvy close friends or family members with their Bitcoin, as opposed to holding it themselves. This introduces an element of trust in the system.
However, second-party custody is not 100% foolproof. Something bad might happen to the custodian, leading to a loss of assets. Alternatively, the ‘trustee’ may decide to misuse the Bitcoin they are keeping on behalf of the user.
Fedimint builds on second-party custody. Broadly speaking, it lets Bitcoin holders build communities of people whose incentives align, essentially decentralizing the custody of Bitcoin. Such a community is known as a federation.
To join a community, a user deposits Bitcoin to the federation and receives a corresponding amount of IOU tokens. These tokens can then be transferred anonymously to members of that federation using blind signatures.
Every federation in Fedimint’s ecosystem will have a multisig Bitcoin address. Bitcoin locked in that address requires a minimum number of signatures to be unlocked and moved. The same applies to IOUs issued by the federation.
For instance, if there is a federation with five members, the multisig setup can be 3-of-5. This means it requires three signatories out of five for the funds to be moved or used.
Such an arrangement ensures the safety of a user’s Bitcoin. It would take several people colluding against the user to steal funds. But since a federation consists of multiple people the user trusts in real life, the chances of a custodian going rogue and misusing the funds are significantly reduced.
Nwosu summarizes Fedi's ultimate goal, saying,
Fedi and Fedimint will help put monetary power back into the hands of everyone, everywhere. This creates brighter futures for billions and especially for those struggling under oppressive regimes, which ultimately makes the world a better place.