Ethereum founder Vitalik Buterin has always advocated multisig wallets as the ultimate way to decentralize the security of crypto wallets.
In May 2021, Vitalik moved $1.3 billion worth of ether from his main public address to a separate multi-sig wallet, demonstrating his commitment to pioneering secure storage solutions within the crypto space.
With the recent phishing scams and wallet hacks across the crypto landscape, Vitalik revealed that he uses a multi-signature wallet to store 90% of his crypto funds.
Here is a breakdown of what we can learn from Vitalik’s move to decentralize his crypto wallet security.
Why Vitalik Buterin Prefers Safe’s Multi-Signature Wallets
The conversation that saw Vitalik explain why he uses a multi-signature wallet kicked off on X.com when Kofi ( a crypto data analyst) reminded crypto enthusiasts to “buy a hardware wallet.”
In his submission, Kofi opined that hardware wallets are a better solution for securing crypto funds, even in worst-case scenarios where you accidentally sign a malicious transaction.
By storing most of your crypto holdings in a hardware wallet, Kofi said, “you’ll only lose the small fraction of your funds that weren’t on your hardware wallet.”
While using a hardware wallet can be a great solution, other risks, such as losing or forgetting your seed phrase or someone finding your stashed seed phrase, are still prevalent among hardware wallet users.
In response, Vitalik revealed that he uses Safe’s multisig wallet for 90% of his funds. He further explained that, unlike regular hardware wallets, multisig wallets offer a decentralized approach to security, distributing control of the funds across multiple trusted parties. This minimizes the risk of a single point of failure often used by attackers to gain control of a crypto wallet.
Benefits of a Multi-Sig Crypto Wallet
Multi-sig wallets offer several benefits that make them an attractive option for the security of crypto wallets.
Unlike hardware wallets that only give control to one party, multi-sig wallets distribute control. You hold some keys but not enough to block wallet recovery, while the rest are held by people you trust. With this approach, you minimize the risks of your wallet getting hacked, thus reducing the impact of a single compromised key or device.
Also, since a predetermined number of signatures are required to authorize a transaction, the risk of accidentally signing a malicious transaction is mitigated. Furthermore, Vitalik recommends giving some of the keys to your multi-sig wallet to other people and not revealing who those people are, even to each other.
Involving other parties and keeping them anonymous increases trust and accountability while ensuring those parties don’t have the undue influence of collision over the wallet.
Multisig wallets also offer flexibility since they can be configured to determine the number of signatures required to authorize transactions. For instance, you can set up your multi-sig wallet to authorize a transaction with three out of five signatures or any other combination, depending on your desired level of security.
Another benefit is that they can be used for collaborative management of digital assets, thus simplifying the process of managing funds within an organization or a team. By distributing control over the wallet, multi-sig solutions promote consensus and prevent any single individual from making unilateral decisions over the funds.
How to Implement a Multi-Sig Solution
There are several steps you can take to configure a multi-sig wallet correctly.
First, choose a compatible wallet that supports multi-sig functionality. Vitalik uses Safe Global’s multi-sig wallets. Safe offers battle-tested multi-sig accounts that store over $100 billion, with 8.6 million accounts deployed.
Other alternatives include Electrum, which was created in 2011 and is considered one of the most secure non-custodial wallets. For Bitcoin holders, the Sparrow wallet offers a reliable solution as it is free and built on open-source software.
Once you have your wallet, you can configure the number of signatures you need to authorize transactions. This configuration largely depends on your security needs and the level of trust among the involved parties.
Next, generate the public and private keys for each party in the arrangement and ensure that each party keeps its private key a secret. Combine all the public keys of all participants to create a multi-sig address. This multi-sig address is where all the funds will be stored. In most cases, the wallet software you use will have this feature ready on its application.
Also, operational procedures for initiating transactions must be established, and each participant must follow the best practices for private key management.
Disadvantages of Using Multisig Wallets
One of the most famous examples of the importance of multi-sig wallets is that of QuadrigaCX, which lost over $104 million after its founder Gerald Cotton died in 2018 when he was the only person with knowledge and access to the private keys of the exchange’s cold wallet.
However, while a multi-sig solution might seem rosy, some disadvantages exist.
For starters, setting up multi-sig wallets requires some technical knowledge to understand the best multi-sig option for your needs. Legal conflicts between the key holders can create a stalemate, thus challenging the smooth operation of the multi-sig wallet.
Furthermore, the sophistication of managing multiple parties holding multiple keys and coordinating transactions among those parties can introduce human error, which may compromise the wallet’s security.
Multi-sig wallets may offer enhanced decentralized security, but they also bring about dependency on the reliability and trustworthiness of other signatories. Plus, multi-sig transactions can lead to larger transactions with higher gas fees and longer confirmation delays, especially on congested blockchain networks.
When to Use a Multi-Sig Wallet
If you want to store large amounts of crypto, multi-sig wallets offer the best solutions, especially when those funds are under collaborative ownership. You can also use a multi-sig wallet when you need escrow protection between two or more parties, thus making it easier to solve disputes.
With the rise of smart contract platforms, multi-sig wallets are becoming increasingly popular in executing complex on-chain transactions or managing decentralized autonomous organizations. While they come with some disadvantages, the pros outweigh the cons, thus giving you peace of mind even when you lose access to your private keys.
