Multisignature wallets can keep your coins more secure (when used correctly)

Multisignature wallets can keep your coins more secure (when used correctly) - and bitcoin wallets 1024x683The phrase "key person risk" refers to when a company relies too much on an individual to be successful. Crypto companies are often prone to taking this risk when managing funds.

Fortunately, multisignature cryptocurrency wallets offer an integrated way to manage this type of risk. Multisignature (or multisig, for short) wallets are cryptocurrency wallets that require two or more private keys to sign and send a transaction.

Obviously, multisig isn't the solution to everything, as OKEx customers learned last month when the exchange suspended withdrawals, explaining that one of its key holders was cooperating on an investigation and couldn't temporarily contact. the company. Without the authorization of the key holder, OKEx was unable to return the money to customers.

How a multisignature crypto wallet works

Imagine a bank vault that requires more than one key to open - this is kind of how multisignature cryptocurrency wallets work. You can choose how many keys to configure to open the vault and the minimum number of keys needed to unlock it (for example, you might have a 2-of-3 multisig where you need two private keys assigned out of three, 3-of-5, 5 -of-7, etc.).

Typically, hardware wallets (i.e. Trezor, Coldcard, and Ledger) are the ideal option for using a multisig setup as they are the safest way to store a private key. Once these wallets are combined into a multisig configuration, they create an entirely new multisignature address that is independent of each individual hardware wallet.

When to use a multisignature crypto wallet

For the Investors At retail, multisignature wallets are commonly used to secure bitcoin, but can also be used for ether and other cryptocurrencies. In particular, crypto exchanges, brokers / OTCs, investment funds, and other crypto companies use multisignature storage to protect their cold storage funds. If a hacker wants to access the reserves, he will need several keys to do so.

Likewise, a multisig ensures that no person in the company is able to unilaterally withdraw funds from the account. The more signatures that are required to perform a transaction, the more distributed the decision-making process can be. Other specific use cases may involve creating a shared account between family members or an escrow account (for example, a bet or property sale).

How to set up a multisignature wallet

Historically, multisignature wallets have been the domain of developers or hardcore Bitcoiners as they are difficult to set up from scratch. Fortunately, it's easier today. Nowadays, there are software wallets that simplify the multisig setup process, as well as services that provide customer support and key management services.

For Bitcoin custody specifically, some popular multisig wallet providers with key management services include Blockstream, Casa, and Unchained Capital. Other DIY open-source multisig software include Caravan, Electrum, Lily, Nunchuck, and Specter, among others.