A Multi-signature algorithm is one of the most reliable storage methods for cryptocurrency

For cryptocurrencies, security is an issue of particular importance. Of course, this could be said about anything, but ensuring reliable storage of digital assets requires more complex technological solutions than, for example, storing jewels in bank vaults.

The cryptocurrency industry has introduced humanity to a lot of previously unknown technologies for storing digital assets. Whilst some of these technologies existed before, after the appearance of Bitcoin they began to be actively used around the world.

This article will consider the multi-signature technology, which is often mentioned during the discussion of cryptocurrencies, but not everyone understands how it works and what it is.

What is multi-signature?

The multi-signature technology implies a process in which several signatures are involved, which comes from its name. In the case of cryptocurrencies, signatures are carried out with private keys and only the presence of all keys allows you to sign a transaction. The fact that such a mechanism can significantly improve the security of specific operations is obvious.

Purely and simply, if attackers take actions to hack the user’s wallet or try to conduct a transaction by taking possession of one of the private keys, when using multi-signature technology there is a maximum probability of detecting and preventing such actions.

This technology in its primitive form has a long history, it allowed for restricted access to individual rooms where the most valuable relics and treasures were stored. They could only be accessed by groups of selected individuals, each of whom only had a part of the key.

For simple examples in the modern world, we can cite a bank vault with several locks, the keys to which are kept by different bank employees, who individually will not be able to open the cell. Of course, both in ancient times and today it is possible to get hold of all the keys or parts of them, but in the digital world this is an almost unimaginable task in terms of complexity.

In the cryptocurrency industry, the first Bitcoin wallet with multi-signature technology appeared back in 2013. Currently, all major cryptocurrency repositories use this technology.

It is worth mentioning separately that when using the technology a higher level of protection can be achieved, if the owners of private keys are located in different parts of the world. This almost completely reduces the risks of compromising all private keys. As an example of a storage in which this feature is used, you can see Simba.Storage.

Cryptocurrency wallets with multi-signature

Private keys are of particular importance for maintaining the highest level of protection when using multi-signature. Therefore, their reliable storage must be ensured.

For ordinary users, the usual and common options for the content of private keys are storage on personal computers, in cloud storage, on a piece of paper etc., but these options are not secure enough, especially when it comes to large amounts, for example, at the disposal of large enterprises.

Personal computers with access to the network can be hacked, as well as accounts from cloud services, and sheets of paper can be lost, damaged or stolen.

In this case, the only proven option is to store funds on hardware wallets, which are also called “cold wallets”. In the case of such wallets, whilst attackers can steal the physical medium, however, they will also need to hack the built-in software protection, which creates unjustified complexity, given that with much less labor, you can hack “hot” wallets.

Based on the above, the combination of multi-signature with hardware cryptocurrency wallets is the most reliable for the safety of digital assets. These wallets are combined into one system through certain settings, in which each wallet contains a private key necessary for signing a transaction. The more signatures are required to perform transactions, the better the decision-making process is distributed.

The mentioned storage Simba. Storage uses multi-signature technology, while all owners of private keys are located in Switzerland, Liechtenstein, New Zealand and the United Arab Emirates, countries where the storage is already actively functioning or where it is planned to launch it. Thus, in order to hack the vault and gain access to the funds, you will need to take possession of private keys simultaneously in four countries, which is impossible.

Is one multi-signature enough for complete security

Do not think that the use of multi-signature technology alone guarantees the safety of funds. Cybersecurity of Bitcoin storage always implies comprehensive solutions for protecting client funds.

Firstly, despite the fact that in case of hardware wallet theft, and attackers may not get access to the funds on them, it will still take time to restore access to the wallets and the corresponding costs of both human resources and financial resources. That is why large organizations provide round-the-clock security from their locations, pay special attention to their employees, and organize a multi-level access system to the storage.

Secondly, it is also worth paying attention to where the company offering digital asset storage services is based. For example, if it is located in a country with a low standard of living, a high crime rate and the owners of private keys are constantly in the same office, then in this case multi-signature provides protection only conditionally. For comparison, it will be safe to store funds in any form in Switzerland, even without modern multi-signature technology.

Thirdly, there may always be additional security measures that are used by the storage to increase protection. For example, in Simba. Storage, in addition to complying with the above conditions, there is also a process of issuing tokens of the ERC-20 standard (Ethereum network) to all clients who leave their funds for storage.

The SIMBA token is issued to customers as an additional confirmation that their Bitcoins are placed in the vault. The token itself can be used to make any kind of transactions and if necessary, it can be used to make a reverse exchange for Bitcoins deposited for storage.

And, of course, the vault team itself should be open, consisting of industry experts with well-tracked experience in the cryptocurrency market.

Summing up all the factors, it can be argued that the multi-signature technology is mandatory for maximizing the reliability of storing digital assets, while it also reveals its full effectiveness in combination with other technological solutions.