what is a cryptocurrency wallet and why do you need a multisig wallet?
An outlook on crypto-currency
With the world rapidly embracing digitalization, crypto-currencies are already disrupting the ‘money industry.’ In fact, studies indicate that at least 1,876 people are working full-time in the cryptocurrency industry, and the actual total figure is likely well above two thousand when large mining organizations and other organizations are added.
The above increase in price and worth of bitcoin among many other crypto-currencies has resulted in an equal growth in the number of crypto-currency wallets.
Defining a crypto-currency wallet
A crypto-currency wallet is a software program that is used to store private and public keys. This software program is for purposes of interacting with various blockchains to enable users to send and receive digital currency and also monitor their balance. Anyone wanting to use any crypto-currency like bitcoin, litecoin, and ether will need to have a crypto-currency wallet. Whereas there are some similarities between physical leather wallets, the truth is that digital currencies do not store any money, there are no currencies stored anywhere in the globe in physical form. All that there is are records of transactions. When a person sends crypto-currencies to another, they are just signing off ownership of the coins to the receiver’s wallet address. For the receiver to be able to spend or unlock whatever currency sent to them, they must have their private key matching the destination public address assigned to the coins. If the public and private key match, then the balance in the receiver’s digital wallet increases and the balance on the senders crypto-currency account decreases simultaneously. There is no physical transfer of coins; there are transaction records recorded on the blockchain and a change in balance in both the sender’s and receiver’s digital wallets.
How crypto-currency wallets work
Crypto-currency wallets work a lot like safety deposit boxes, those that we use to store our most treasured possessions. We use bond certificates, a will or jewelry. We cannot afford to lose the keys to such safety boxes at whatever costs. Because if we do so, we lose ownership of our valued possessions. In the case of a crypto-currency wallet, instead of guarding physical keys, we seriously guard digital keys. They are commonly referred to us master keys or private keys. Digital keys are in the form of hexadecimal codes like the one below.
At first sight, the digital key might appear daunting, but sooner it becomes flexible enough to be printed on paper, written down, converted into an image, typed on a document and even memorized.
Types of crypto-currency wallets
Crypto-currency wallets fall into three main categories: software, hardware and paper wallets. Software wallets can take the form of a desktop wallet, online or mobile wallet.
Desktop wallets are crypto-currency wallets that are downloaded and installed on a laptop or PC. Users can only access it from a single computer that has it saved. They offer one of the highest forms of security. However, if the computer is hacked or gets a virus, then there is a high likelihood of losing all your crypto-currencies and valuables.
1. Online wallets run on the cloud and are accessed from any computing device and any location. While this is a convenient option, your keys are stored online hence giving them to a third party to guarantee storage, making the keys more vulnerable to theft and hacking.
2. Mobile wallets run on an app in a smartphone. These are useful because they can be used anywhere even in retail stores. These are usually much smaller and simpler compared to the desktop ones due to the limitation in space available on the smartphones.
3. Hardware wallets store private keys on hardware devices like USB. And although they facilitate transactions online, they provide storage offline which enhances the security of the private keys. They are not only compatible with different web interfaces; they also support different currencies depending on the ones you would want to use. You need to plug in the hardware device to any internet connected device, enter your pin and transact. These help users transact online and at the same time enable them to keep their currencies away from danger.
4. Paper wallets. From the surface, one could say these are physical copies or printouts of private or public keys. But additionally, it means a piece of software that securely generates a pair of keys that are in printable. Transacting on the paper wallet is quite easy. If you want currencies on your paper wallet, you transfer coins from your software wallet to the public address on your paper wallet. The reverse happens by transferring coins from your paper wallet to the software wallet. This process is referred to as ‘sweeping.’
How to get a crypto-currency wallet
There are few places from which you can get crypto-currency wallets. The first place is from web browsers. You can also download them from app stores. Lastly, you can purchase crypto-currency hardware device wallets from online stores. Example of digital wallets includes MyEtherWallet.com, IMtoken, MyTrezor that served for initial coin offerings (ICOs) such as Gnosis, Crowdwiz, and Aragon among others.
How to secure your wallet
Different types of wallets and service providers have varying degrees of security. Online wallets are riskier than offline wallets. Hackers can easily exploit vulnerabilities for the online wallets for stealing. Offline wallets do not offer hackers such chances. Although online wallets have proven to be riskier, diligent security measures need to be implemented and observed for all cryptocurrency wallets. Always remember that losing your key may mean theft of all your valuables and that if you sent your currency to the wrong person, there is no way of reversing the transaction. Here are ways to secure your wallet:
1. Backup your wallet. Choose to have smaller amounts of your currency on your wallet for daily use and store the rest of the sum of crypto-currency in a high-security environment.
2. Update your software. Keeping your software up-to-date helps ensure you are up-to-date with your security measures.
3 .Add additional security keys. The more the layers of security for crypto-currency wallets, the better.
Tips for beginners on the choice of wallet
If you are a guru, you already know your way around. For beginners, you may need to ask the following questions:
- Do you need a wallet for everyday use or a one-time transaction?
- Do you hope to use several currencies or just one?
- Do you need to access your digital wallet from multiple locations or a single location?
With this questions, consider the following tips:
- Consider using the official crypto-currency wallet for every coin. For instance, for bitcoin consider using Bitcoin Core Wallet, for Litecoin consider using Litecoin Core Wallet and MyEtherWallet or Ethereum wallet for Ethereum.
- Consider custodial wallets or multi-coin wallets. They can be used to store many coins (not all of them) in exchange for one account.
- Consider purchasing hardware wallets.
- You could also use universal software wallets.
DAPP BUILDER- Introducing MultiSig Wallets
DAPP BUILDER is a SaaS platform that brings do it yourself dapp builder to businesses/users who do not necessarily have knowledge of programming. Now the SaaS platform is taking the game to the next level by introducing multisig cryptocurrency wallets which is set to revolutionize the cryptocurrency space.
A recent piece on CryptoCoinNews describes a situation where a father attempts to obtain custody of crypto-funds of his son deceased in a tragic plane crash. Before the crash, the son never had the chance to share his private keys with his parents or with anyone else and — as the cryptocurrencies saying goes — “Not your keys, not your coins”. Besides, many cryptocurrency users don’t consider how they can pass their cryptoassets to their heirs and this is not entirely surprising when you consider that the largest share of cryptocurrency investors are millennials, and research indicates that a staggering 78 percent of millennials (ages 18–36) do not have a will.
In the traditional banking system, the solution to this problem has always required a user, when they setup an account with a given bank, you are also required to setup the “beneficiaries” of this account. In the world of cryptocurrencies the same arrangement can be defined in the lines of multi signature/multisig (aka multi-custody) smart contracts.
There are many garden varieties of these contracts, providing, for example:
1) A one-time permission to send a specific amount of funds to specific destination only if at least M out of N approvers have approved the sending.
2) A one-time permission to send not larger than a specific amount of funds to any destination without additional approvals.
3) A standing permission to send some amount of funds to any destination:
- If the amount is less than a pre-set limit, then no additional approvals are necessary.
- If the amount is larger than the limit, then additional approvals are required.
4) A shared account allowing 2 or more owners share the funds
- This is the kind of multi-signature/multi-custody account that would have helped the father to recover the crypto-funds of the deceased son.
5) Another good list of multisignature contracts is available here.
These contracts are listed in the increasing order of their “permissiveness”. The earlier use cases provide the most control to the owners of the funds, the latter give more permissions to the other users.
Many of these use cases are already implemented in Ethereum smart contracts and some can be supported even by BitCoin. Here’s the list of the most well-known Ethereum multi-sig contracts/wallets:
1.dApp Builder MultiSig
The Bottom Line
Cryptocurrencies were the first application of the blockchain technology, and in doing so introduced an entirely new set of businesses, jobs and vocabulary in various industries. Visa, for instance, has been exploring the impact of these technologies to determine how this new ecosystem will continue to grow and evolve. This proves that with advancements in the digital world and growth in crypto-currency prices, the need for crypto-currency wallets continues to increase. You may not only want to acquaint yourself with crypto-currency wallets but also consider securing one according to your needs.