The Crypto Insider Report #12: Multisignature wallets and much more
Disclaimer: Everything we write in "The Crypto Insider Report" is an x-ray of the industry as we see it, through the lens of publicly available information. We are not financial advisors.
The first steps in crypto: What Are Multisignature Wallets?
The idea of Multisignature wallets appeared in 2012, the first ones being created and implemented a year later for the Bitcoin Blockchain. To define a Multisig wallet simply, we could see it as a bank vault. From a technical point of view, to unlock such a vault, more than one key is required.
Therefore, a Multisig crypto wallet will allow you to choose the number of keys needed to unlock it and set a minimum number of keys that can perform that procedure together. For example, a wallet can be assigned 5 private keys to open it, with the minimum required key number being 4.
This kind of wallet includes additional features, besides the classic ones of a crypto wallet, allowing, for example, access to funds and transaction history for all those who own an assigned private key.
For advanced security, each user who owns a private key also receives a unique recovery phrase which they must keep safely to guarantee that the wallet can be accessed if necessary by the minimum number of private keys required.
Advantages and Disadvantages of Multisignature Wallets
The advantages of a Multisignature Wallet include the following:
Multisig wallets make cyberattacks more difficult by increasing the number of potential failure points that hackers encounter throughout this process.
A Multisignature Wallet helps eliminate the security issues that occur with a single-private key mechanism.
In addition, it eliminates the dependency on a single device. For example, one of the private keys can be saved on a smartphone, while another can be stored on a desktop, laptop, and so on.
Last but not least, using a Multisig Wallet will reduce the dependency on a single user.
As in any other situation, there are also disadvantages that come with such a wallet:
When there are several private keys, there is no legal custodian of the funds deposited in such a wallet, which is actually shared with several owners of private keys. In the case of an event with a negative impact, it is very difficult to get legal help.
The speed of processing transactions suffers because, in order to sign them, it is usually necessary to access a device from a third-party source.
If it is necessary to recover a multisig wallet, this is a rather complicated process because it will be done by importing the recovery phrases on different devices.
Multisignature Wallets - Use Cases
Enhanced Security
A Multisig Wallet provides users with the benefit of a higher and extra level of security for their funds. If one of the private keys is compromised, the user or users of the wallet can be assured that the funds remain safe.
Although cybercriminals are constantly developing new methods to steal crypto funds, the built-in technology will easily deter malware or phishing attacks. A hacker will not be able to hijack multiple associated devices at once and, therefore, multiple private keys.
Decision Making
If a business partnership between several people invests in crypto, such a Multisig Wallet will be very useful to control the access to the company’s common funds.
This way, each member of the partnership will hold a private key, but none will be able to misuse the fund or have full access to the holdings.
Escrow Transactions
The Escrow Transaction is a legal agreement, in which a third party controls money or assets until two other parties involved in the transaction meet certain conditions. Therefore, an Escrow contract constitutes a mediator that reduces the risk for both of the main participants in a transaction.
A 2-of-3 multisig wallet can facilitate these Escrow transactions between two parties, and the process will thus include a third party as an arbiter if something doesn’t go as planned.
Two-Factor Authentication
Since private keys can be stored on different devices, Multisignature Wallets can be used as a form of two-factor authentication.
However, there are also risks in this context, which will increase if the Multisig address is set to 2-of-2 private keys. If one of the keys is lost, access to funds will also be automatically lost.
Conclusions
Multisig Wallets use multiple private keys, and therefore multiple signatures, to validate transactions and transfer funds, allowing for unanimous decision-making and thus providing increased security.
If used properly, they allow for many useful applications, which make crypto assets more attractive to investors, and therefore, they are a much safer and more credible alternative to crypto fund management.
Animation of the day: Bitcoin from 2009 to the present day:
For more animations: Cryptomatics
Tania
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The Altcoin Pulse
1. Polygon introduces an upgrade similar to the EIP-1559 in the testnet, a mechanism to burn some of the fees related to a transaction.
2. Circle launches USDC on Avalanche.
3. UST, Terra's stablecoin, is constantly growing as the ecosystem develops.
https://decrypt.co/88314/terra-stablecoins-market-cap-could-soon-flip-dai
4. A new fund focused on investments in gaming projects developed on Solana. $150m will be invested in equity and token funding rounds in the next 18 months.
5. An interesting proposal in the Aave community about intellectual property rights in the open-source sphere.
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Interesting Headlines
1. The last week stood out by net flows of $88m in the digital asset funds tracked by CoinShares. Most volumes went into Bitcoin funds ($55m). Investments in Ethereum experienced a net outflow of $17m, while Solana and diversified funds experienced net inflows of $19m and $15m, respectively. It has been a week with divergent visions among investors: North American funds were characterized by inflows and those in Europe by outflows.
MTD=month-to-date (November), YTD=year-to-date, AUM=total assets
2. a16z, one of the largest VCs in the crypto space, has invested in PleasrDAO. It will hold a stake of less than 5% of the tokens. It's their second investment in a DAO after the one in Friends With Benefits in October.
3. NYDIG conducted a $1bn funding round at a valuation of $7bn. The funds will be used to continue the development of its platform dedicated to institutional customers and its integration with Lightning Network, smart contracts, or ways of tokenizing assets.
4. Coinbase Wallet adds support for NFTs.
https://blockworks.co/coinbase-wallet-to-bring-nfts-to-your-browser-extension/
5. 90% of the BTC supply was mined.
6. Nike continues its journey into the metaverse with the acquisition of RTFKT, an NFT studio focused on digital collectibles, including a range of virtual sneakers.
https://decrypt.co/88228/nike-steps-metaverse-buying-nft-sneaker-studio
7. Bored Ape Yacht Club will have its own Play-to-Earn game; release date Q2 2022.
https://decrypt.co/88149/bored-ape-yacht-club-play-to-earn-nft-game-animoca
8. BTC distribution by address balance.
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Tweet storm of the week:
Business book of the week: Extreme Ownership: How U.S. Navy SEALs Lead and Win. A book about self-responsibility and self-accountability and their role in the risky missions we all have through life. I read it 4-5 years ago, but I have recently gone through the notes I took then as I was trying to understand where the challenges of a DAO can come from.
Youtube clip of the week: GaryVee at Ryan Holiday. It's not about crypto, but it's a foray into the mindset of a man who knows what community means in web 3.0 through a stoic viaduct.