On Friday, Ethereum founder Vitalik Buterin took to Twitter to tout the benefits that come with using social recovery and muti-sig wallets for the self-custody of cryptocurrencies.
According to Buterin, self-custody is vital as most centralized exchanges are becoming untrustworthy, causing crypto users to lose their crypto assets without any notification. But the Ethereum founder acknowledged that being solely responsible for protecting one’s assets carries inherent risks, which he said can be mitigated using social recovery and multi-sig wallets.
Buterin also revealed that most of the Ethereum Foundation’s crypto assets are stored in multi-sig wallets.
Social Recovery and Multi-Sig Wallet – What are They?
A social recovery wallet allows users to approve transactions with just a single master key that is recoverable if lost. In addition, users have the power to assign multiple people to hold recovery keys which are used to retrieve a lost master key.
These wallets, however, are still in their early stages but are set to become more available in the coming months. Buterin said if Social recovery wallets are made more accessible, then crypto users should use them for hot storage.
On the other hand, multi-sig wallets also let users assign several people to hold the wallet keys. However, the major difference between the two wallet types is that Multi-sig wallet holders determine the number of keys required to approve a transaction. It could be all the keys or just a few. Buterin recommends this type of wallet for cold storage, a practice of storing crypto assets offline.
In a tweet, the Ethereum founder emphasized the importance of selecting trustworthy guardians. In simple terms, guardians are people designated by wallet users as key holders to help recover wallets or approve transactions.
Buterin said guardians have to be individuals who will not attempt to steal the wallet owner’s crypto assets. As such, the selected guardians should be decentralized, and each guardian’s risks must differ.
Buterin proposed that wallet holders choose guardians that barely know each other and, if possible, should be in different nations. In addition, the Ethereum founder stated that wallet holders should test the guardians several times a year to make sure they can still access their keys.