The importance and demand for crypto exchange platforms to use multisig wallets are increasing with instances like QuadrigaCX Case. The platform failed to locate and secure significant cryptocurrency reserves held in cold wallets due to the sudden death of the exchange CEO, Gerry Cotten. He was the only one with access to exchange’s cold (offline) storage wallets and he suddenly went to 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 and solutions 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.
Multi-signature is a technology that enables various types of crypto wallets to require more than one user’s digital signatures 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 a transaction. It 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.
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 single authority with complete control over funds and wallets. It makes it easier for hackers to hack through this single point of failure.
A few more challenges faced by crypto stakeholders and how multisig technology-based wallets address them:
Compromised users’ accounts: If a single user’s wallet or account gets compromised due to various reasons, the access to their crypto funds will be lost, maybe forever.
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.
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, provides users enhanced control over funds and 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 this address problem is multisig wallets. Multi-signature prevents a single point of failure and crypto-asset losses. At Oodles. our crypto experts consider them as the best means to secure the crypto exchange system due to the following reasons:
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 is possible to be executed.
Unanimous group decision making: As keys are distributed and maintained collectively by permissioned co-signers, the security, and control of funds significantly increase 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.
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, we have experience in providing efficient multisig cryptocurrency wallet solutions development fortified with features like multi-currency support, QR code scanner, NFC support, self-explanatory interface, and more. Also, we have expertise in providing cryptocurrency exchange development services for custom business needs.