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Multisig wallets 🔒 Enhancing security and control
How multisig wallets offer decentralised access, transparency, and adaptability while mitigating risks associated with single-signature wallets.
Cryptocurrency users often seek ways to enhance the security of their digital assets. One solution that has gained popularity is the multisignature (multisig) wallet. In this explainer, we'll delve into the concept of multisig wallets, how they work, their advantages and disadvantages, and various use cases.
What is a Multisig Wallet?
Definition: A multisig wallet allows multiple private keys to be used for accessing and transferring cryptocurrency.
Set-Up: Parties determine access rules, including the required minimum number of keys for executing tasks.
Types of Multisig Wallets: All private keys required or threshold signatures (e.g., two out of three, three out of five).
Utilising Smart Contracts: Multisig wallets leverage smart contract code for on-chain governance, providing self-custody options.
Advantages of Multisig Wallets
Decentralised Access: Eliminates single signature risk and ensures access even if one key is lost.
Transparency: Open-source smart contracts enhance transparency and allow auditing of the key holders.
Adaptability: Smart contracts enable the wallet's adaptation to changing needs, avoiding the use of different wallets.
Enhanced Security for Businesses: Businesses and institutions can mitigate key person risk and build trust among partners.
Secure Escrow Services: Buyers and sellers can safely transact using multisig wallets, with a trusted third party as an arbitrator.
Joint Accounts and Collaborative Ownership: Multisig wallets facilitate consensus and accountability among multiple parties.
Disadvantages of Multisig Wallets
Speed: Transaction processing may be slower due to the coordination required between multiple parties.
Lack of a Legal Custodian: Conflicts among key holders can complicate the resolution process and legal claims.
Technical Knowledge: Setting up and choosing the right options for a multisig wallet may require technical expertise.
Use Cases for Multisig Wallets
Decentralised Finance (DeFi): Multisig wallets enable peer-to-peer transactions without intermediaries, reducing risks associated with centralised finance.
Business and Institutional Use: Multisig wallets help manage key person risk and build trust among partners in the pseudonymous crypto industry.
Escrow Services and Transaction Security: Buyers and sellers can securely transact with the involvement of a trusted third party.
Joint Accounts and Collaborative Ownership: Multisig wallets foster consensus and shared decision-making among multiple asset owners.
Multisig vs. Single-Signature Wallets
Single-Signature Wallets: Require only one signature for transaction authorisation, posing a single point of failure.
Multisig Wallets: Require multiple signatures, enhancing security, transaction authorisation, and redundancy.
Security Considerations and Vulnerabilities
Decentralisation Challenges: Lack of a central authority can present challenges in hierarchical structures.
Recovery Mechanisms: Proper recovery plans are crucial to prevent permanent loss of funds in case of keyholder emergencies.
Examples of Multisig Wallets
UniPass: Designed for web2 users who want to access web3 applications. It provides an easy entry into the world of cryptocurrency without the need for gas fees or seed phrases. UniPass supports various chains such as Polygon, Optimism, Ethereum, BNB Chain, Avalanche, and Arbitrum.
Castle: Multisig wallet specifically created for NFT collectors. It allows users to store, trade, and perform other transactions related to their shared or personal NFTs. The wallet integrates with popular platforms like OpenSea, Genie.xyz, and Gem.xyz. Castle operates on the Ethereum blockchain.
Liminal: Customised multisig wallet solutions for crypto-native companies. It addresses pain points such as human error, internal collusion, and cyberattacks. The wallet assigns different roles to users based on their responsibilities, ensuring secure management of crypto assets. Liminal is compatible with over 18 chains, including Bitcoin, Solana, Ethereum, Cardano, and BNB Chain.
Goki: Multisig wallet that allows users to program their wallet to specify owners while retaining the ability to edit them later. Transactions involving derived accounts require owner approval, while owner-invoker accounts do not. Goki is designed for the Solana blockchain.
Rabby Wallet: Offers users the convenience of switching to the appropriate chain for open web3 DApps. It allows users to check for risks and errors before signing transactions. Rabby Wallet supports Ethereum and Multichain, which encompasses 55 chains with more being added in the future.
Multisig wallets provide enhanced security and control over digital assets by requiring multiple signatures for transactions. They offer decentralised access, transparency, and adaptability, making them suitable for various use cases such as DeFi, business transactions, escrow services, and joint ownership. While multisig wallets come with certain disadvantages and security considerations, they offer a more secure future for cryptocurrency holders seeking self-custody and reduced risks.
TTD Week That Was 📆
The week of crypto shutdowns and revivals.
Thursday: Killin' them crypto myths 🧟
Wednesday: Snitch to earn. Who's in?
Monday: Calling crypto scams 🆘
TTD Week in Funding 💰
Xterio $15 million. Game publisher which leverages cryptocurrencies and NFTs to enhance player experiences and ownership of in-game assets.
Get Protocol $4.5 million. Revolutionise the ticketing industry, providing more secure, transparent, and verifiable ticketing solutions for events.
Sound $20 million. Music NFT platform for artists to tokenise creations, ownership rights, and monetise their work in a decentralised manner.
LunarCrush $5 million. Social analytics platform that provides insights and real-time analytics on social media trends and market sentiments.
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