Multi-Signature Wallet: A Secured Wallet for DeFi Users

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Traditionally, businesses were supported by a key person who is responsible for every transaction taking place in a business. It means that the whole business relies on an individual with no other backup. Similarly, in the crypto space, funds were managed by a cryptocurrency wallet consisting of a single private key. It is also called SingleSig wallet. A single private key refers to the requirement of one authorization to have access to the funds. Although it was a much shorter and more convenient way of making the transactions, it involves many risks. Anyone who has a digital PIN (legally or illegally) can easily access the wallet. 

On the other hand, a crypto wallet with MultiSig wallet (also called a Multiple-Signature wallet) that has multiple authorization requirements before making the actual transaction is a much secure more secure way than a single private key. The splitting of the private key into several keys, allows the Defi users to trade in a safe environment. With the help of several co-signatories, a transaction is being audited every time it passes from one authorized person to another.

Advantages of MultiSig Wallets to Organizations

MultiSig is a viable option for organizations based on cryptocurrency transactions. These organizations have voluminous transactions, with the funds being handled somewhere far away in the world. Most of the time, people do not each other in person and consequently, this makes the transactions to be an uncertain deal. With a single private key, the probability of fraudulent activity is very high. When such an organization uses a MultiSig-wallet, having multiple authorizations from different sources is required. This process definitely decreases the risk of accounts being misused.

 

The procedure of creating a MultiSig Wallet

The process of setting up a MultiSig wallet is quite simple. First of all, DeFi user needs to decide how many signatories are required for the wallet. This can be done by simply clicking on adding as many signatories as you wish. This means that before making a transaction, the added-up number of authorizations will be required. All the signatories share a “master public key” to operate the wallet. Once, all authorized people agreed to join the MultiSig wallet then the wallet will decide the number of participants need to validate the particular transaction. No authorized party can freeze or restrict your funds, since the keys are encrypted, and they never leave your computer.

Drawbacks of MultiSig wallets

Not everyone is a technically savvy user. The complex process of validating a transaction among a large group of signatories leaves a beginner ambiguous. Moreover, a MultiSig wallet is not completely free from risks. If all the co-signatories collaborate in a fraudulent activity, then it is hard to prove them guilty. Another factor that makes the wallet risky is the number of authorized persons. If two persons are authorized, personal differences hinder the transaction to be taken place. Therefore, three persons are advisable at a minimum. Similarly, transactions through multi-sig are expensive because it takes more time than the SingleSig wallet.