Following the evolution of blockchain-based currencies, several other byproducts also came into existence to ease the function, process, and storage of cryptocurrencies. In this comparative piece, we will explore the advantages and disadvantages of Single-Signature Wallets vs. Multi-Signature Wallets and discuss which of these is more secure.
What are Single-Signature Wallets?
There are several types of storage wallets in cryptocurrencies, but Single-Signature Wallets stand out due to their unique features. A single-Sig Wallet is a digital wallet that only requires a single signature or one private key to authorize the transactions.
In these wallets, a single signature means a single entity or a person has control over the wallet and can execute approval transactions without requiring approval from anyone else.
How does a Single-Signature Wallet Work?
In Single-Signature Wallets, a unique key is generated, which is further used to validate, verify, and sign a transaction. The generated private key also verifies that a single user owns the funds and has permission to make transactions.
Public keys also play a significant role in Single-Signature Wallets, as the public keys are shared with others to receive the amount of cryptocurrency in the wallet. In simple words, a public key is a door that helps others deposit funds at your address.
Furthermore, public keys in Single-Signature Wallets are also used to verify a sender’s identity and ensure that the transaction is legitimate. It is also used to verify the digital signature created by the private key.
Advantages of Using Single-Signature Wallets
There are several advantages to using Single-Signature Wallets, some of which are:
Simplicity– The Single-Sig Wallets are easy to set up, with a single private key to control the wallet easily without following lengthy and complicated processes to set up the wallet.
Speed– In a Single-Sig Wallet, one can process transactions with a higher transaction rate than Multi-Signature Wallets, as single-sig wallets require only a single signature.
Enhanced Privacy– One can share the public key with the sender without revealing the wallet owner’s private key.
Accessibility– In terms of accessibility the Single-Signature Wallets can be accessed on various devices including the hardware wallets.
Less Transaction Cost– Making a transaction in a single-signature wallet is comparatively cheaper than that of multi-signature wallets.
Easy Recover– In case of lost credentials or login failures, single-signature wallets are easy to retrieve using a single private key.
Cons of Using Single-Signature Wallets
Security Risks- In case of loss or compromised private key, the vulnerability of funds theft surges.
Key Management Challenges– It’s quite difficult to store and manage a private key securely, and losing the private key might restrict you from accessing your funds.
Limited Accountability– The single-signature wallets have limited accountability due to single ownership.
Scam and Theft Vulnerability– The risk of theft increases if the device holding a private key is infected by any malware or phishing software.
What are Multi-Signature Wallets?
In cryptocurrencies, Multi-Signature Wallets are defined as wallets that require multiple signatures before the execution of a transaction. In simple words, a wallet that requires multiple approvals for the execution of a transaction is termed a multi-sig wallet.
The nature of multiple approvals makes these wallets more secure compared to single-signature wallets.
How Does a Multi-Signature Wallet Work?
A multi-sig wallet is created by using multiple private keys, each of which is held by a different party/signer. It is not mandatory that the transaction processed by the multi-sig wallet should be approved by each and every signer or the private key holder.
During the creation of a multi-sig wallet a threshold for validating a transaction is determined, if a multi-sig wallet has 5 signers and a transaction is processed then all five signatures aren’t mandatory if 3 out 5 sign the transaction it would be approved.
Post-signing or validating using private keys the signatures are further collected & combined using the cryptographic algorithms. It also reduces the risks of unauthorized transactions.
Advantages of Using a Multi-Signature Wallet
Reduces the Risk of Single Point Failure- The feature of shared control makes multi-sig wallets more secure and also helps to avoid the risk of a single point of failure.
Enhanced Accountability– As there are multiple signers holding separate private keys which helps to make these wallets more accountable reducing the risk of theft or fund wipeouts.
Less Risk of Loss of Funds- In case a single signer loses the private key there is no issue other private key holders can still access the funds, without any fail.
More Secure Against Phishing- If a scammer or fraudster acquires the private key from a signer, the funds are as safe as other remaining private key holders and unauthorize the transaction as needed.
Cons of Using Multi-Signature Wallets
Complexity- Compared to single-signature wallets multi-sig wallets are more complex to manage and set up.
Less Compatibility– The multi-signature wallets are less compatible with the available exchange and other services.
More Transaction Fees– The transaction fees in multi-sig wallets are comparatively high compared to those of single-sig wallets.
Conclusion
Choosing the right wallet is crucial for security and convenience when managing cryptocurrencies. Single-signature wallets offer simplicity, speed, and ease of use but come with significant security risks, key management challenges, and limited accountability.
On the other hand, Multi-Signature Wallets provide improved security, accountability, and protection against phishing and theft. Still, they can be challenging to set up and manage, with higher transaction fees.
Ultimately, the choice between Single-Signature and Multi-Signature Wallets depends on individual priorities. If security and accountability are preferred, Multi-Signature Wallets are the better choice.
However, if ease of use and speed are more critical, Single-Signature Wallets may suffice. Users can consider their specific needs and risk tolerance to strike a balance. For high-value transactions or shared accounts, Multi-Signature Wallets provide added protection.
For everyday transactions or individual accounts, Single-Signature Wallets may be a better choice.