How Multisig Crypto Wallets Address Crypto Security Challenges

This article gives you a brief overview of multisig crypto wallets and why businesses should opt for this type of wallets in their crypto wallet development processes. 

Need for Multisig Crypto Wallets

The importance and demand for crypto exchange platforms to use multisig crypto wallets are increasing with instances like QuadrigaCX Case. The platform failed to locate significant cryptocurrency reserves in cold wallets due to the sudden death of its CEO, Gerry Cotten. He was the only one with access to the exchange’s cold (offline) storage wallets and he suddenly went on a long rest. 

Many believe it's fair to assume that the whole situation was an exit scam. Some users believe that QuadrigaCX never had cold wallet reserves or a pool of funds. Had the platform been using a multisig crypto wallet solution, the exit scam could have been avoided. 

Multisig wallets provide an additional layer of security and reliability to cryptocurrency and exchange users. Now, most of the established exchanges like Binance use multisig crypto wallet technology to reinforce the security of their crypto wallets. 

Let’s take a deeper look at the issues with traditional custody solutions and how multisig wallet solutions reform the ecosystem.

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Multi-Signature Wallets

Multi-signature is a technology that requires more than one user’s digital signature to verify and sign a transaction. Similar to a double lock system, it requires two or more permissioned individuals to use private wallet keys to conduct transactions. 

The system eliminates the risks of such scams while establishing user trust. It also provides provisions to increase the number of permissioned individuals, depending on business needs.  

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Existing Custody Solutions | Challenges

Today’s many crypto custody solutions lack transparency and fail to provide control over funds to their owners. Instances of popular crypto exchanges experiencing hacks and asset loss have made safe custody of crypto assets a major issue. 

Crypto exchanges operating with weak security mechanisms attract hackers to conduct scams and frauds. For instance, hackers target an exchange’s online wallet to gain illegitimate access to users’ stored funds. 

Numerous centralized exchanges use web wallets to enable users to trade cryptocurrencies. They have a single authority with complete control over funds and wallets. It makes it easier for hackers to hack through this single point of failure. 

Crypto stakeholders face the following challenges that multisig technology-based wallets can address:

• Compromised Users' Accounts: If a single user’s wallet or account gets compromised due to various reasons, access to their crypto funds will be lost. 
• Crypto Account Freeze: Exchanges often freeze wallets and crypto accounts to prevent hacks and upon suspecting any malicious activity.

Crypto exchanges must address the above-mentioned issues and prepare to fortify their platforms with multi-signature crypto wallet solutions.

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Multisig Crypto Wallet as a Solution 

Numerous cryptocurrency holders trade their crypto assets from a crypto exchange and store them in a hardware wallet. To a certain extent, the wallet mechanism ensures transparency and provides users with enhanced control over funds. Further, it mitigates the risk existing in a centralized crypto custody solution.

However, a hardware wallet also provides a single point of failure. Users may lose their funds even if they have stored or kept a backup of the wallet. A solution to address this problem is multisig wallets. 

Multi-signature wallets prevent a single point of failure and crypto-asset losses. At Oodles, our crypto experts consider them the best means to secure the crypto exchange system due to the following reasons:

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Distributed Keys 

With multisig wallets, keys are distributed among different geographical locations and across multiple devices. It ensures that a hacker is not able to hack multiple distributed keys, and thus, enhances the security of crypto assets. 

No Single Point of Failure

Multisig wallets provide an additional layer of security leaving no central or single point of failure. Due to being distributed, a multisig wallet requires multiple signatures to process a transaction. 

So, if hackers manage to access one of the keys, they won’t be able to withdraw funds from your wallet. When the rest of the co-signers sign and validate the transaction, then only the transaction execution will occur.

Unanimous Group Decision-making

Permissioned co-signers collectively distribute and maintain keys. It significantly increases the security and control of funds in an organized manner. With a multisig wallet, unanimous decision-making during a transaction can thrive, which is essential for trust-building in the ecosystem.

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Conclusion

Multisig crypto wallets enhance the security, privacy, and autonomy of transactions and crypto asset management for crypto users. There are more ways to implement robust security mechanisms for the security of a crypto wallet, like biometric authentication, password-protected access, two-factor authentication, and more.

At Oodles, our crypto wallet developers have experience in providing efficient multisig cryptocurrency wallet development. Our wallet services include features like multi-currency support, a QR code scanner, NFC support, a self-explanatory interface, and more. Contact us today to get started with the development process.