Securing your digital assets and ensuring they don’t get lost, stolen or corrupted should be at the top of your crypto to-do list. In the first quarter of 2023, $452 million of crypto was stolen, and although significantly down on Q1 2022, new scams and threats are constantly evolving. There is plenty of information out there about securely storing your keys, but what about the security of the wallets you store your crypto in?
Wallets use digital keys to allow owners to make transactions. A public key lets people send crypto to your wallet; it’s like a bank account number. Private keys enable you to access your wallet and your funds, similar to a password to your bank account. Public keys can be shared with anyone; your private key should only be used by you and needs to be stored securely, preferably offline.
There are many wallets in the crypto ecosystem, but not all are equal when it comes to security. There are three common methods crypto service providers use to secure your assets which relate to signing transactions. Single signature (single-sig), multi-signature (multi-sig) and multi-party computation (MPC), which provide different levels of security.
As the name suggests, a single-sig wallet only needs one signature and one key to authorise a transaction. If someone else gains access to your key, they can access and steal your funds.
While single-sig wallets are easy, quick to use and usually less expensive, they’re also the least secure. If you lose your key, you lose access to your funds. And they’re the most straightforward kind of wallet for hackers to get into, leaving you open to thefts and data breaches.
With a multi-sig wallet, there are multiple signers, each with their own private key. Two or more people need to authorise and sign a transaction.
Multi-sig adds another level of security to your wallet. No single person authorises transactions, so the risk is shared. Multi-sig wallets are more secure than single-sigs. Keys are stored on separate devices, making it harder for hacks to take place. However, this also makes them more complicated to set up, and as signing takes place online, you can see how many people sign a transaction. Multi-sig is also not compatible with all crypto service providers.
Considered the most advanced of the three security practices, MPC uses a cryptographic method of splitting the private key for a wallet into multiple pieces, which are stored on different devices, removing single points of failure. The parties can’t see each other’s keys, and data isn’t shared.
There are good reasons to use MPC technology. It provides excellent data privacy as data is encrypted at rest and in transit. It also prevents assets from being stolen, as a hacker would need to access several separate devices to steal your private key. MPC takes place off-chain, and a single signature is published on-chain, adding another level of security to the process. An MPC wallet also ensures you can access your crypto if one of the other parties is unavailable.
However, MPC wallets are complex and could be off putting to someone new to crypto as they are more complicated to set up. Furthermore, like multi-sig wallets, MPC is incompatible with all digital assets. Finally, they can also operate more slowly and less efficiently than other wallets as they use more computational resources.
The essential security lesson
Each wallet type has its benefits, and which one you use will depend on your requirements. Want a quick and easy wallet to manage? Single-sig will do the job. However, if the security of your assets is your overarching need, MPC is the way forward. Multi-sig sits in the middle. It gives you extra protection compared to the single-sig and is more readily available than MPC.
Whichever wallet you choose, you must keep a backup of your private key, or you risk losing access to your assets permanently. Our top tips for backing them up include the following:
- Use a trusted third party like Coincover to hold a backup for you, so you can always regain access to your funds.
- Encrypt your backup so it will be more difficult for someone to access it and your funds.
- Store your backup securely, for example, in a safe or safety deposit box. There’s less chance of you losing it.
- Keep multiple copies of your backup and put them in different locations. Then, if you lose a copy, others will be available to use.
We provide a secure private key backup service which uses military-grade security to protect your assets. Costs are lower than you building and maintaining an in-house backup. In addition, we are specialists in crypto security, meaning you will have access to technical and security expertise when needed. Find out more when you book a meeting with one of our team.