Would you have to live under a rock not to have heard at least something about Mt Gox? How about Bitfinex? Both hacked, and folks who had crypto stored with them lost big time. Losing assets is never good at all; can it be avoided?
In considering how to protect your assets best, have you given much thought to a Multi-Sig security system? Let’s think about this, and maybe the application would be something of interest to you? I love the idea!
The first thing to clear up (for those who are scratching their heads) what is Multi-Sig? Well, simply put, Multi-Sig stands for Multi-Signature, but it certainly doesn’t end there.
Multi-Sig accounts are set up with two or more persons holding keys and can be predefined so that all persons or the majority of persons with keys are required to “open” the account door and send or withdraw any of the assets therein.
Multi-Sig beefs up the security in Bitcoin wallets, increases use cases for Corporations, makes escrow and arbitration trustless among other things. Just think of the problems it could solve!
What if the only key were somehow lost? Unfortunately, this happens, then the assets are lost forever. Naturally, this would be devastating for anyone.
Since Multi-Sig accounts can be set up so that no one person has ultimate control over the assets. Therefore, the loss of just one of the keys would still mean all would not be lost. Say you set the Multi-Sig to require three out of five keys activate the “lock?” This predefined condition would mean the funds were still accessible. What a relief!
Imagine you and two partners want to open a business. The capital account can be set up to require that at least two of the keys are necessary to “open” the account lock. What does this action do?
- Ensures that one key cannot access the funds for any reason.
- On the other hand, as long as two of the critical key holders agree, they can access the funds to pay the light bill, for example.
- If one of the keys are lost, this will not result in disaster.
Blockchain networks have added native support for multi-Sig accounts to increase security as compared to a single-key account most people use.
Keeping multiple private account keys in different physical locations, entirely offline, on an air-gapped machine, or in cold storage helps bring a tremendous amount of peace of mind. An air-gapped computer is physically isolated from the internet, as well as other systems with internet access. Cold Storage, according to Bitcoin Wiki: Cold storage in the context of Bitcoin refers to storing Bitcoins offline and spending without the private keys controlling them ever being online. This action resists theft by hackers and malware. Using a combination of a Multi-Sig account with offline or cold key storage dramatically increases the security of assets which is of particular interest in storing more significant amounts of Bitcoin.
Multi-Sig accounts can be set up according to needs and wishes. Perhaps thinking of the following ideas can spark the imagination:
- Possible scenario #1:
- Shared accounts: A couple wants to share an account, but have separate wallets. One of two keys is required to “open” the lock.
- Possible scenario #2:
- Two-factor authorization – you keep one key safely stored and from the two-step security, another factor holds a “key” on your phone.
- Possible scenario #3:
- Safer Paper Wallets? You keep a key with the paper wallet in storage; a trusted friend or family member holds a key, and a third key stored in another safe location.
- Possible scenario #4:
- Bitcoin Escrow or arbitrator service: A service which holds funds until the terms are met in a sale or purchase to the satisfaction of both parties. (the downside, of course, is you are sending funds to someone to hold that may or may not be trustworthy)
- Possible scenario #5:
- Corporate BOD: A company board of directors decides it wants to maintain control over company funds. They can set up the Multi-Sig account so that four of the seven board members are required to use their key to “open” the lock and delegate funds to Executives for dispersal.
These are certainly not all possibilities, but enough to encourage thought on creating and increasing security to your assets. Is it wise to rely on just one key to unlock what separates you from your assets?
A Couple Wallets offering Multi-Sig accounts:
(As always, do your due diligence!)
- Electrum is a Bitcoin-only wallet. It is not particularly user friendly, and, if you are new to Bitcoin, you may prefer to use a different wallet.
- Electrum is “open-sourced”.
- You can learn how to create an Electrum Wallet here:
- Search Youtube for Electrum
- Armory too is a Bitcoin-only Wallet. It first maximizes security for the user and then makes it easy to understand and use.
- Armory’s Multi-Sig function is called “Lock-box” and this is how to use it:
- Search Youtube for Armory Wallet
A company, business, group or even an individual could benefit from more security. The question is, then, how could increased security benefit you?
Keep in mind – Always have backups to your keys! Requiring all keys 2 of 2 / 3 of 3 / 4 of 4 / etc. puts you right back where you started since if you lose just one key, you have lost access to your money! If you have 2 of 3 or 3 of 4, you can still recover your money if you lose one key. (This is undoubtedly an improvement in a simple Bitcoin Wallet.)
You cannot make a wallet with an infinite amount of keys, there are some technical limitations.
*Photo credit goes to Purestake