An added layer of security by requiring more than one key to authorize a transaction.
In the world of cryptocurrencies, security is a pressing concern. Making a mistake can mean substantial amounts of digital assets can be irretrievable forever. Some people have ended up losing hundreds of millions of dollars because they can’t remember the password to the hard drives where they have stored eye-watering amounts of crypto.
Businesses also need to be wary, and ensure that they can keep their customers’ funds safe. One way of doing this is through the use of multi-signature wallets, which is where more than one individual is needed to approve a transaction. This can prevent abuse of power and introduce safeguards.
An example of why multi-signature wallets can be so powerful comes in the form of Gerald Cotten, who was the CEO of the now-defunct Canadian exchange QuadrigaCX. He died in India — reportedly from complications linked to Crohn’s disease — but the company’s funds were irretrievable because he was the only one who had access to the firm’s cold wallet.
When utilized correctly, multi-signature wallets can add protection for consumers and businesses alike. They can be compared with a number of doors that need to be unlocked before you gain access to a room.
There can be a degree of flexibility when it comes to setting up multi-signature wallets, too. For example, if you have seven people who can authorize a transaction, the signatures of five of them may only be required for access to be granted.
Let’s imagine that Karen, Jessica and Susie decide to establish a multi-signature wallet together. This would mean that two of them need to be present if a transaction is going to take place.
Multi-signature wallets can help to offer safeguards for crypto investors in the event that something happens to them. For example, a signature can be given to a lawyer, a partner and a friend — or kept in a safe place. The challenge here is ensuring that funds ultimately don’t end up being accessed by these other parties without their consent.