Risks of Storing Bitcoin
• Online threats like malware, hacks and phishing attacks can lead to losing funds with no way to recover them.
• People have lost money due to dramatic accidents like leaving bitcoin in centralized exchanges that gone bankrupt or vanished.
• DIY wallets are available for extra security, allowing users to build their own device that leaves no trace and securely generates private keys.
What is a Multisig Wallet?
Multisig wallets have existed in the Bitcoin ecosystem since 2012 and represent a great security aid in a self-custody practice. They are two types of multisig wallets: collaborative custody wallets (whereby you use a third party to manage one of your private keys) and self-custody wallets (whereby you alone manage the distribution of all private keys).
Best Collaborative Multisig Wallets
Collaborative multisig wallet offer 2-out-of-3 key management, whereby you will have control over one private key while the third party holds the other two – one online and another offline in cold storage. The advantage of such solutions is convenience as customer service can assist with managing the private keys if needed, but also come at the expense of privacy as companies may require KYC procedures. Furthermore, they may not be available everywhere globally. One popular example is Casa, which offers multisig wallet services free of charge.
Self Custody Wallets
Self-custody wallets allow users to keep full control over their funds without relying on any third parties for assistance or holding any information about their transaction history or balances. Popular examples include hardware wallet Trezor Model T, software wallet Electrum and open source project Wasabi Wallet for enhanced privacy features. These solutions may be more secure than collaborative ones as there is no single point of failure but require an extra effort from users when it comes to managing multiple private keys correctly.
Choosing between collaborative custody and self-custody depends on many factors including user’s risk awareness level, geographical location and technical skillset. Both solutions come with risks so understanding them before deciding on one is recommended in order avoid potential losses associated with digital assets storage mistakes.