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Safeguard Your Crypto Wealth with Multi-Signature Wallets

Exploring the Benefits of Multi-Signature Wallets for Enhanced Asset Protection

Author: Vitaly Bahachuk, co-founder of Linen Wallet

Over the past ten years, the cryptocurrency industry has experienced a meteoric rise, creating newfound wealth for a multitude of individuals. However, this rapidly growing market has also drawn the attention of malicious actors, leading to an increasing number of crypto investors suffering from asset theft. Consequently, it has become essential to understand how to properly safeguard our crypto wealth. In this blog post, we will explore the various types of self-custody wallets available and highlight the benefits of multi-signature wallets, which offer a robust security framework to protect your crypto wealth.

Most of you know what a crypto wallet is, but let’s have a quick rundown so we are on the same page before talking about multi-signature wallets. 

  • Your assets are always stored on the blockchain on your public address (wallet address) and never moved off the blockchain. 
  • Your public key or keys are stored off the blockchain in your wallet app or a hardware wallet.
  • You do not actually hold any crypto in your wallet app or your hardware wallet. Your wallet app or a hardware wallet stores a set of keys that authorize you to make operations on the blockchain using your public address (wallet address).
  • You own your private keys if you are using self-custody wallets and have unstoppable and unrestricted ownership of your crypto wealth without reliance on a third party.
  • You do not have unstoppable and unrestricted ownership of your crypto wealth if you store your crypto on exchanges of other custodial wallet providers.

The above is the most crucial part of crypto ownership — you can custody your cryptos, such as Ether, Bitcoin, and others, by yourself. 

In the spirit of self-sovereignty, separation of assets from the state, and asset protection, I will focus on storing and protecting your crypto wealth using self-custody wallets where you have unrestricted and unstoppable access to your crypto wealth. Self-custody comes with a great deal of responsibility for safeguarding your private keys. Your crypto wealth may be lost forever if your private keys are lost or stolen! 

Two major types of self-custody wallets exist today: 

  • Wallets that provide users with one set of private keys – both software and hardware wallets.
  • Wallets that provide users with multiple keys to secure crypto wealth. These are software wallets or software + hardware wallets setups.

These are the only two types of wallets that give you unrestricted and unstoppable access to your crypto assets at any time no matter what. Owners of those wallets are not locked into a single wallet app provider and have access to their crypto wealth from alternative interfaces. Those who are tech-savvy can go directly to the blockchain and access their assets using a command-line interface. If you think about it, it is a very powerful concept — no one can stop you from accessing your wealth.

If you use a wallet app that provides you with a single private key or a secret recovery phrase, you better know how to safeguard it adequately because there is no one to reset your wallet password. It is impossible. If you misplace your secret recovery key or it gets stolen, your assets are gone forever. It is very hard to keep secret recovery phrases secure over the years as storing online is a big no. Safeguarding your secret recovery phrase securely offline is hard if you do not have a safe at home or a safe deposit box at a bank. 

Almost every day, I hear stories about stolen secret recovery phrases, and I have started a subreddit to bring attention to this problem. I share some horror stories about lost and stolen secret recovery phrases in the subreddit here. Hundreds of millions of dollars worth of crypto has gone due to stolen or missing private keys. Single-key wallets are essentially a ticking bomb, as investors may only know if their keys have been compromised once assets are stolen or become inaccessible. 

The second way to store crypto assets is using wallets that have multiple keys, also known as multi-signature wallets or simply multisigs. Multi-signature wallets allow you to set up multiple private keys to secure the same wallet and have a quorum of m of n keys (for example, 2 of 3 keys) to transfer your assets. 

Using multi-signature wallets is the only secure way of storing crypto wealth long-term and having unstoppable control over your crypto assets. Vitalik Buterin, the creator of Ethereum, is one of the biggest proponents of multi-signature wallets and is using them too. 

Multi-signature wallet

A multi-signature wallet offers a fully customizable security system, allowing you to create your own rules. One popular rule is the multi-signature account, which necessitates multiple authorized signers instead of just one private key owned by you. For example, you could assign two trusted individuals as additional signers (think of your relatives or close friends), requiring at least two approvals for transactions.

This shift from using a single private key to a customizable system provides numerous security advantages for self-custody wallets:

  1. Multiple signatures: Multi-signature wallets need several private keys to authorize a transaction or wallet recovery. This means even if one key is compromised, an attacker can’t access funds without the other required keys, significantly reducing theft or unauthorized access risks.
  2. Enhanced access control: Multi-signature wallets provide better access control by requiring multiple signatures. For instance, transactions over $100 could need an extra signatory, such as another crypto wallet or mobile device.
  3. Recovery options: In case of lost or compromised keys, multi-signature wallets offer a safety net by involving a trusted person or entity to hold one of the keys, ensuring continued access to your crypo wealth.
  4. Reduced single points of failure: Multi-signature wallets spread the risk across multiple keys, decreasing the impact of a single point of failure, unlike single-key wallets.
  5. Transaction fees in stablecoins: Some multi-signature wallets, like Linen Wallet, enable paying Ethereum network fees in stablecoins instead of ETH.

Most reliable multi-signature wallets use the Safe technology, securing over $35 billion in crypto assets as of April 2023. Linen Wallet, a mobile multi-signature wallet built with Safe, offers multi-signature wealth protection, streamlined onboarding, excellent user support, and a user-friendly interface. Linen Wallet features a pre-set key distribution, such as a three-key multi-signature wallet, requiring two keys for transactions and recovery. Users can also access their assets using third-party interfaces, known as Sovereign Mode. More about Linen Wallet security is in this post.

While hardware wallets generally offer better security than single-key software wallets, they still have the same single point of failure as regular software wallets do. However, hardware wallets can serve as one of the signatories in a multi-signature wallet setup, adding an extra layer of protection. 

In conclusion, using a multi-signature wallet is the most secure way to store and manage your crypto wealth long-term, offering enhanced protection against theft, unauthorized access, and single points of failure. As the preferred choice of Ethereum creator Vitalik Buterin, multi-signature wallets provide customizable security settings, recovery options, and the ability to pay transaction fees in stablecoins. By choosing a reliable multi-signature wallet like Linen Wallet, you can enjoy a user-friendly experience while maintaining complete control over your digital assets. Safeguard your crypto investments with a multi-signature wallet and enjoy unstoppable access to your wealth, no matter what challenges the future holds.