Multi-sig is Not a Complete Wallet Backup Solution
- Dave Pasirstein
- Founder, CEO
4 min read
This article is about using multi-sig for the backup of a crypto account. I.e. A single owner may distribute multiple wallets to safe locations so that if their primary wallet becomes unavailable, they can use one of these others as a replacement. This article is not about the benefits and risks of using multi-sig or multi-sig services for general transaction signing.
Contents
Why not?
1. Geographic Distribution and Logistical Hurdles
Storing wallets, such as hardware or paper/metal seed phrases, across different geographic locations may seem prudent to mitigate single-point failures. Yet, this distribution introduces logistical complexities. The geographic distribution must be sufficient enough to not be impacted by regional events or disasters. For example, it may mean placing a key in Hawaii, Colorado, and perhaps a country in Europe while ensuring the monitoring and security of each location. If a wallet is lost or stolen in one location, recovering or replacing it becomes a daunting task. Newly created accounts or the updating of keys requires physical access to each affected wallet, which can be impractical and require expensive travel if spread across multiple regions. For many, this may be cost-prohibitive and result in shortcuts adversely impacting the security and reliability of using multi-sig for this purpose.
The geographic distribution can also result in hardships when it comes to ensuring loved ones have inheritance access but not before.
2. Challenges in Updating and Maintaining Keys
The world of cryptocurrency is ever-changing. New keys may be inevitable. Bitcoin’s BIP360 identifies the need for new key types to protect from quantum computers. Managing keys in a multi-sig setup is inherently complex. Adding new keys necessitates generating them and distributing new wallets (hardware, paper, metal) — each requiring physical access. Over time and given geographic distribution, this will lead to managing numerous devices and high travel costs, complicating rather than simplifying the management.
3. Loss of a wallet
Even with multi-sig, the risk of losing a wallet persists. Each of the geographically distributed locations requires strong security and theft monitoring. Similarly, the resilience of multi-sig setups against cyber threats does not translate to physical calamities. Wallets in geographically diverse locations are each vulnerable to fire, floods, or earthquakes. Hardware wallets are further at risk to EMPs. While a loss of a single wallet alone cannot compromise funds, the owner may not be aware of the situation for some time. There is also a non-zero probability that more than one wallet may be impacted before a different wallet is known to be missing or can be replaced. After all, we cannot expect significant time to be provided between unwanted events. Similar to the other limitations, it may also be expensive to monitor and maintain each of the wallets.
A Comprehensive Perspective
Despite these risks and limitations, the use of multi-sig is excellent as part of a backup and recovery of a cryptocurrency wallet. Multi-sig alone is insufficient to be comprehensive. Instead, it is important to combine multi-sig with a solution that can increase decentralization and fault tolerance, and address the limitations and risks associated with multi-sig alone, while still maintaining a strong security posture. Such a solution would hold limitations of its own; however, the combination should provide comprehensive coverage. One such solution could be SecretShield.
This article can help to understand the limitations and why such combinations are critical to fully protect your assets.
Side-Note: Digital Inheritance
To protect and care for your loved ones and those most important to you, several services offer multi-signature wallet solutions for digital inheritance. Often it involves providing wallets, such as a hardware wallet to your loved ones who are frequently unfamiliar with crypto and at risk of misplacing or losing the wallet. They too need a backup and recovery solution as multi-sig alone is insufficient for such scenarios.
Conclusion: Beyond Spare Wallets
Although multi-signature wallets offer significant security benefits, they are not a complete solution for backup and recovery. By understanding these pitfalls, users can adopt a more holistic strategy to safeguard their digital assets effectively. Such a comprehensive solution involves leveraging alternatives such as SecretShield to complement the limitations of multi-signature wallet backup and recovery strategies and ensure that assets are not lost.