A multi-sig wallet (multiple signature) is a pretty distinct digital signature that’s designed to allow multiple users to verify and/or authenticate documents together using their unique signatures. So, in essence, a multi-sig wallet is generated via a combination of one or more than one anomalous signature. If you’re thinking about stepping into the world of cryptocurrency investment, it would be wise to consider getting a multi-sig wallet.
While multi-signature wallets are a relatively recent technology, the concept of multi-sig has been in existence for a long time, even before the advent of blockchain and the first digital asset, Bitcoin. Within the realm of digital currencies and stablecoins, multi-sign wallets were initially used for Bitcoin’s virtual locations to send and/or receive payments in 2012. It is this context that eventually led to the development and widespread use of multi-signature wallets in 2013.
While these special digital wallets can be utilized for a variety of different applications, they are primarily used to perform secured and transparent transactions on the blockchain.
Comparing Single-Key Wallets with Multi-Sig Wallets
It is typical for users to store their cryptocurrencies in a conventional, single-key virtual location. This means that the digital assets can only be accessed by the individual who has a corresponding, authorized private key. In turn, this means that the person only requires a single digital key to access and/or transfer their funds without requiring permission or approval from a third party.
Sure, when it comes to smart contracts, using a single-key wallet is pretty quick and straightforward, especially when compared to a multiple-signature address. But single-key wallets do come with a slew of potential security complications that you need to be wary of. For example, with a single key, your cryptocurrency or other digital assets only have one point of failure. This is exactly why hackers are hell-bent on generating unique and perpetual phishing tactics to constantly exploit this vulnerability and access any individual’s account.
In addition, single-key wallets aren’t exactly the way to go when it comes to conducting business transactions using DeFi crypto. Imagine that a company’s crypto funds are stored on a single-key address that can only be accessed using one authorized key. So, what this means is the key to those funds would only be kept with one trusted individual or 2-3 other individuals. Now, does that really sound safe to you?
Multi-signature wallets provide a far safer and better solution to these security problems, especially when it comes to farm finance. One of the best things about a multi-sig address is that no single individual would be able to access any crypto funds without the unique signatures of other authorized account holders. Moreover, each individual would also have a specific private key.
A Glimpse into How Multi-Sig Wallets Function
Let’s use an easy example to understand the concept of multi-sig addresses. Let’s assume that a company has a safety deposit box at a bank. That deposit box can only be accessed with two keys held by Peter and John. Now, if Peter wants to access the funds in the safety deposit box, he will always need authorization from John and both these individuals would need to be present to open the box.
Multi-sig wallets work with the same simplistic concept where a crypto account can only be accessed with the consent of two or more individuals sharing that account. All persons involved will need to input their signatures (which are virtually generated) to access any funds.
So, when you’re yield farming, utilizing a multi-sign address will automatically generate another more powerful layer of security and you’ll have more peace of mind knowing that no single individual will be able to access the account.
Why Multi-Sig Wallets are Important for Crypto and Blockchain Projects
If you’re looking for the best crypto to invest in, first consider these powerful benefits of a multi-sig wallet.
Multi-signature addresses offer a more extensive degree of cybersecurity and digital protection compared to single-key wallets. It makes it a heck of a lot more frustrating for cybercriminals to hack all of the keys associated with a single crypto account.
In addition, multi-sig wallets also divide the responsibility of the security of the account between two or more individuals, which means you won’t always have to rely on one person to access an account.
Similarly, these wallets help minimize dependence on any one device because different key holders can store multiple keys on a range of devices. So, if one laptop is stolen or destroyed, another can be used to generate the key.
Third-Party Escrow Authorization
In a typical business scenario, an escrow arrangement is a legal agreement where an independent party is authorized to hold the funds in their vaults unless all stipulations of the agreement are duly performed. In the multi-sig context, Peter and John will agree to involve a third-party (Alice) to escrow any payments between them. So, Alice now has the authorization not to release the funds if there is a dispute between Peter and John, unless the conditions from both parties are met.
Better and Safer Fund Management
Another excellent advantage of using multi-sing wallets is that companies can designate 5-6 wallets to different individuals so that no one or two individuals can access joint business funds. With each person holding an authorization key, the chance that someone would misuse the account will drop to zero.
Some Considerations for Multi-Sig Wallets
While multi-sign wallets offer excellent security measures when it comes to your DeFi yield, there are vital considerations you should keep in mind. For example, installing and using the multi-sign wallet comes with a steep learning curve. You will need to have the required technical knowledge to set up the wallet. However, you can choose to have it set up by a third-party service.
Moreover, because multi-signature wallets aren’t commonly used because the technology is new, there are no current legalities or laws that dictate what plan of action to take if something goes awry. Understand that if you’re setting up a multi-sig wallet for your funds, you will not be able to appoint a legal custodian.
All in all, multi-sign wallets are a great way to add a separate and more reliable layer of security to your cryptocurrency account.