Ledger, a provider of hardware solutions which offers the Ledger Nano hardware wallet, recently posted a blog on Medium addressing the use of Segregated Witness for hardware wallets. Pieter Wuille, a bitcoin core developer, presented his Segregated Witness proposal at the Scaling Bitcoin in Hong Kong.
Hardware wallets protect bitcoin keys to make sure bitcoin purchases are made to the right address and the right amount, the blog noted. In order to do this, they require certain information about the transaction. They have to know the destination address, the amount and how much money is actually entered into the payment.
This amount is not included in the “previous output” information that qualifies the transaction input. An attacker could misrepresent the amount associated with the inputs, delivering an inflated fee as the fee gets coded as the difference between the outputs paid and the inputs provided. This is the problem that a hardware wallet developer has to solve. How Hardware Wallets Work
A hardware wallet signs the transaction to validate it. Under the current process, this includes modifying a copy of the full transaction for each input signed. This requires strong design choices because hardware wallets typically do not have enough RAM to hold an arbitrary transaction.
This problem can be solved by developing a proprietary “previous output” structure called a “trusted input.” The hardware wallet parses the previous transaction fully, then returns a signed “previous output” with an associated value.
But even if this can be done in the background, it does not provide an optimal solution. The prior transaction still needs to be fetched from the network and streamed to the hardware wallet. If the prior transaction comes from a service that groups payments into big transactions like a mining pool reward or a lottery, this can be quite painful.
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