Who should own a Multisignature Wallet?
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As temporary solutions for storing assets such as using single-signature wallets are becoming less useful when it comes to security, users are looking for new ways to securely store their funds at ease. Indeed, the recent fund attacks and steals on digital space has brought a big concern for users and organizations. A single-signature wallet, which might be hot, cold, custodial or non-custodial, still presents a single point of failure. Therefore, it is ideal to have multiple levels of approval for using cryptocurrencies. This is when multisignature wallet comes into play. Multisignature wallets require multiple signatures to authorize a transaction, which means that every transaction needs to be approved by a group of authorizers. In this article, we will talk about who will need a multisignature wallet to securely store their funds.
Who will likely use a multisignature wallet?
A multisignature wallet, which is a kind of digital signature that enables two or more people to sign transactions collectively, can be used for multiple purposes as well as target customers. In the below section, we will walk you thoroughly through the specific target customers who can benefit from using a multisignature wallet.
Multisignature Wallet for Individuals
Many people may think that multisignature wallets are most utilized by businesses. However, in reality, it can also be hugely beneficial for individuals as well. Traditionally, an individual uses a single-signature wallet to store their funds, but this method brings a security threat as it only requires one private key to access the money. In case the private key is stolen, the stealers would be able to gain access to the wallet and take all the money away. In contrast, using a multisignature wallet brings a higher level of security since it requires multiple layers to authorize transactions. For example, if you set up a 2-of-3 multisignature wallet and store it in separate places such as one on your phone, one physically on a piece of paper and one key electronically on your laptop. Even if one of your keys is exposed to the hacker, he can’t still access your wallet since it requires two signatures. Meanwhile, you can still use the other two keys to access the funds. This practice brings better security to store funds for individuals, and it also explains why more and more people are looking for a multisignature solution to protect their wallet.
Multisignature Wallet for Community-Based Venture Capital (CVC)
In the world of cryptocurrency, the model community-based venture capital, which is a venture community established by individuals and controlled by a trusted group of investors, is really popular. Unlike venture capital firms that usually have big partnerships, funding and operate like an organization, community-based venture capital usually gathers funds from its community and provides financing to startup and small businesses for profits. The profits will then be given back to the people in the community who have provided their funds before. However, in this type of community, the fund is usually kept by the founder of the community and they have to trust the person who is in charge of the fund. In worst case scenario, the fund manager can manipulate, use, or even steal the fund for personal purposes. Consequently, the investors in the community would lose all their money invested, and even receive no profits if this happens. Therefore, they need a safer way to better secure their investment rather than just rely on trust and reputation of the community founders.
Using a multisignature wallet to co-manage the funds is the most preferable way in this situation. The CVC can set up a 4-of-6 multisignature wallet if the community is small, or a 7-of-10 multisignature wallet for a bigger community to co-manage the funds. The keys can be kept by both founders and proposed representatives of the community. Therefore, whenever there is a transaction, it needs to be approved by both sides, including the founders and community. This establishes a solid foundation for trust in community-based venture capital which helps avoid unwanted fund losses or steals.
Multisignature Wallet for Crypto Organizations
Similar to community-based venture capital, crypto organizations can also take advantage of multisignature wallets to manage their funds. Given the nature of online working in cryptocurrency space, multisignature wallets are a highly secure crypto storage choice for groups or organizations that are dispersed throughout the globe and want to manage cash in circumstances where participants don’t know each other in person.
Multisignature Wallet for Decentralized Autonomous Organizations (DAOs)
Community governance for any type of corporation is being made possible via decentralized autonomous organizations. We're seeing fresh, innovative uses for DAOs, like GameFi comic books providing the groundwork for collectable card game creation and backing from influential figures like Vitalik Buterin, the co-founder of Ethereum, who asserts that shared decision-making is vital in preventing collusion.
On the other hand, there are DAOs that dissolve or run out of ether (ETH) to repay lenders, and there is a general decline in optimism. Along with their worry over the numerous attack vectors that have an impact on projects, the number of detractors is rising. DAOs must look at new structures in order to avoid corruption in order to put an end to this story. In order to further this egalitarian method of decision-making, multisignature wallets are an essential step in getting users and donors to see DAOs as a safe substitute for centralized corporate structures.
The largest cloud over their egalitarian structure is the worry of protecting DAO funds. A suitable governance structure is required and cannot be negotiated, and any resources invested in the DAO will be kept in its treasury. The first point to be made is that all Web3 initiatives and DAOs must continue to raise cash in order to guarantee continuous operations and future protocol advancement.
Treasury management improvements should be made first, especially when there are lots of DeFi platforms such as bZx are struggling with hacks, and everyone on the DAO governing committee should be held responsible for the negligence of the protocol. Although there isn't a crypto wallet that is 100% secure, multisignature wallets offer protection from external hacking risks since they require access to several keys.
Although there are several types of wallets to store cryptocurrencies, multisignature wallets are undoubtedly one of the safest solutions for individuals, communities, organizations and DAOs to keep their funds as it offers high security, avoids a single point of failure, establishes trust between parties, etc.. Looking forward, we are going to see more adoption of multisignature wallets in the cryptocurrency space.
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