Are You Getting Rich on Bitcoin? Unchained Explains How Multi-Signature Wallets Protect Investors’ Bitcoin
Everyone has heard the phrase “not your keys, not your coins.” Joe Burnett, Head of Research at Unchained, explains how investors can protect their Bitcoin.
Bitcoin and its price are back in the mainstream media spotlight, and with prices trading near $100,000, interest in the world’s number one cryptocurrency is likely to intensify.
Behind Investors' Daily Bitcoin Obsession
With Bitcoin prices on the rise and President-elect Donald Trump potentially pushing for the creation of a strategic reserve of Bitcoin, the most serious concern should be assessing whether the company's operational security is up to scratch.
In Episode 48 of the Decentralize with Cointelegraph podcast, host Ray Salmond speaks with Unchained’s Director of Market Research Joe Burnett about best practices for securing your Bitcoin portfolio and growing your investment in a tax-efficient way.
Single point of failure leaves Bitcoin users vulnerable
While hardware cryptocurrency wallets are a much better option than keeping Bitcoin on exchanges or in software wallets, there is still a risk that the assets could be compromised if someone manages to take over the seed address.
Burnett suggests setting up multi-signature as a way to eliminate this single point of failure since multiple signatures are needed to generate a transaction.
“You’ve heard of hardware wallets and software wallets. You can buy your own Ledger, ColdCard, Trezor, which are individual hardware wallets. But ultimately, when you buy one of these devices, and you set up a single virtual signature address, your bitcoin is controlled or protected by a single key that is stored on that single device. You might write down your seed phrase, which is actually your key to your bitcoin. Then that key becomes a single point of failure.”
Is multi-signature the future?
Burnett explained that using collaborative custody options similar to Unchained, Bitcoin holders could create a three-key multi-signature vault where the investor holds two keys and Unchained holds one key as a backup.
“Unchained keeps one key as a backup, so if you have both keys and one key is lost, damaged or stolen, you won’t lose your bitcoins because Unchained has another key as a backup. So it’s the best of both worlds when it comes to having a trusted institution with you to help you make sure you don’t lose your bitcoins, and then also maintaining full sovereign control over your bitcoins.”
In this setup, where two keys are needed to transfer your Bitcoin, Unchained only holds one of the three keys, Burnett said, ultimately rendering Unchained unable to transfer Bitcoin to customers.
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