Multi-Signatures for Blockchain Are An Option

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Despite its widening adoption, there remains a pervasive misconception that crypto is more vulnerable to hacks than traditional assets. The opposite is true. “Hacking” a crypto wallet is virtually impossible because crypto is, by definition, encrypted and decentralized. What the media refers to as a “hack” is usually a simple phishing scam, where a crypto holder unwittingly hands over the keys to his or her wallet. Those legitimate keys are then “verified” by the community and the assets within are removed. 

In other words, crypto theft is usually a result of human error; not systemic failure.

But now, there is a third level of security that addresses the “human” part of the equation: multi-signature — or multisig — authentication. Much like a physical safety deposit box, multisig crypto wallets require at least two keys to open. Although, multisig does more than prevent phishing scams. It can also facilitate the division of digital assets and create redundancy, so the loss (or forgetting) of a wallet’s keys does not mean the loss of its contents.

Hironobo Ueno, CEO of crypto gaming project, says that multisig could be a game-changer. “Astar, for example, has developed a very innovative concept called ‘Dapps Staking,’ which allows an account to stake tokens to a smart contract,” he says. “Another feature in Astar’s runtime is the Custom Signature Call. This pallet allows accounts to execute Substrate extrinsic calls using an external ECDSA signature.”

Not all multisig transactions are so sophisticated, nor do they need to be. Indeed, many are just as simple as a standard, in-person visit to one’s safety deposit box. The only drawback to date has been a presumed slowing down of the authentication process by requiring multiple approvals, but, as Ueno observes, this is a problem that smart contracts have solved. Smart contracts are executed automatically once certain conditions are met.

Another common problem solved by multisig is the unintentional loss of “keys,” or passwords. Many Bitcoin holders were careless with these keys, especially in the coin’s early days, because Bitcoin was considered an interesting project, not an investment that would increase exponentially in value, as it has shown to be. Keys were written down on paper or stored on hard drives, both vulnerable to loss, as well as actual hacking. In comparison multisig can store passwords across machines, using a so-called “m-of-n type” to create redundancy.

It works like this: a number (m) of private keys of the total (n) are coded to authenticate a transaction. A 2-of-3 multisig wallet, for example, would require two out of three total keys to remove crypto. Those keys could be located on discrete hardware, minimizing the odds of loss or theft. The odds become even smaller if different hardware wallets are used for each key because potential hackers (or phishers) no longer have a single point of entry, or even a consistent protocol.

The same principle applies to using multisig as a backup, though the possibilities are nearly endless here. For example, a 1-of-2 multisig could be used for a joint bank account, so either account holder could spend crypto using just one key. If one holder losses their key, a back up is still available.

If you wanted to use a multisig wallet for escrow, for example, you might use a 2-of-3 design. In this instance, buyer and seller theoretically fulfill their obligations under the contract, and each “signs” off on the release of funds. However, if there is a disagreement, a neutral third party — the escrow company in our analogy — becomes the tie-breaker, using their key. Still, like the two principals, the escrow company cannot unilaterally move any funds.

Finally, private keys can be distributed among a trusted group in virtually any number, with a simple majority (or less) required to unlock the wallet. Encoded as such, funds are free to move automatically, according to the terms of the multisig agreement. Changes to the agreement would work on exactly the same principle.

Ueno says that multisig is just one more exciting innovation unleashed by decentralized finance technologies. The net result is removing expensive and inefficient gatekeepers from the financial system, and delivering power to the people.

The post Multi-Signatures for Blockchain Are An Option appeared first on Voyage New York.