When it comes to transacting with cryptocurrencies, security is the first priority, especially in light of repetitive hack attacks and breaches. Therefore, blockchains and Web 3.0 keep updating and improving security protocols and systems.
Safeguarding your crypto money is crucial because it is the hacker’s first target, and having a highly secure crypto wallet assures that your digital belongings will not be compromised or stolen.
Regular crypto wallets provide a sort of protection using private key encryption. However, multi-sig crypto wallets add another security layer by requiring a consensus before any transaction takes place.
Here’s everything you need to know about multi-sig wallets and why you need to use one.
What Are Multi-signature Wallets
Multi-signature wallets use more than one private key, as opposed to regular wallets. Therefore, this adds an extra security step in a similar way to two-step authentication.
Multi-sig wallets have more than one owner who uses the wallet and conducts transactions. In order to carry out any operation on the shared wallet, the majority of users shall “sign” approve the transaction.
For example, if a multi-wallet has five owners, then three users at least must approve the transaction. Once approved, private keys contribute to encrypting the transaction and deploy smart contracts to proceed with the money transfer.
This way, if the wallet gets exposed to a hacker who intends to steal any crypto assets, the majority confirmation will be required, and they can block the transaction and even block that user to safeguard the wallet.
Multi-Sig Wallets vs Regular Crypto Wallet
Regular crypto wallets have one owner with a single private key and a seed phrase. If the private key or seed phrases get leaked, anyone can access the wallet and conduct operations. Moreover, if the owner loses the 12/24 secret codes, they can lose access to the wallet and any stored funds are lost.
However, shared wallets that require multiple signatures can be recovered by other private keys if one key gets compromised. Also, if one user forgets their seed phrase, a new secret code can be generated with the help of other wallet members.
Mutli-sign wallets are more flexible, and you can configure access settings for each user and remove or add new members to the pool.
Owning a multi-sig wallet helps you store your finds in a safer environment with fewer chances of getting hacked or exposed. These wallets require more than one private key to validate transactions before they get executed.
Despite the fact that they are relatively new and include configurations that might be complicated for the average user, they provide a safer environment, especially for corporate use or if you own a brokerage firm that deals with cryptocurrencies.