In a Reddit post, Buterin emphasized that having too much of a concentrated grasp on your self-custody wallets can be a bad thing if you get “hacked, coerced, or incapacitated or die.”
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Ethereum co-founder Vitalik Buterin has emphasized the importance of having a varied set of “guardians” to maximize the safety of crypto asset self-custody via multisig and social recovery wallets.
Given the ever-growing rate of crypto scams and hacks over the past few years, and several major crypto firms going bust in 2022, self-custody and maintaining sufficient wallet safety procedures have never been more critical.
In a March 16 Reddit post on the r/ethereum community titled “How I think about choosing guardians for multisig and social recovery wallets,” Buterin gave a detailed run down of how he approaches wallet security.
Self-custody is important. And social recovery and multisig is a great way to do it.
A quick reddit post on how I think about choosing guardians for social recovery and multisig wallets:https://t.co/FY1iyJ6BFC
— vitalik.eth (@VitalikButerin) March 17, 2023
While their structures differ, multisig and social recovery wallets rely on guardians, which serve as external sources to recover funds or approve transactions. Generally, guardians can be sets of external wallets belonging to the same individual or addresses controlled by other people or entities.
According to Buterin, it’s important to decentralize wallet guardians, as owning more than one of your guardians provides a “tricky tradeoff: you get to trust other people less, but you’re also concentrating more power into yourself, which can create a risk if you get hacked, coerced, or incapacitated or die.”
“My rule of thumb is that enough guardians should be controlled by other people that if you disappear there are enough other guardians left to recover your funds.”
Buterin went on to advise that someone’s set of guardians should not know of each other, as this “greatly reduces the risk that they collude” to attack their wallets and assets. However, they should still be able to find each other in case something happens to the wallet owner.
“If something happens to you, they will still be able to find each other, because there are obvious standard protocols that naturally come to people’s minds in such a situation (e.g. contact your family),” he wrote.
Additionally, the Ethereum co-founder suggested that people should “instruct guardians to ask a security question” that only they and the guardian will know when confirming an operation — and only confirmed when the correct answer is given.
Related: DeFi sees its biggest hack in 2023 as Euler loses $197M: Finance Redefined
For degen traders or those not making long-term hodl plays, the Ethereum co-founder also stressed that they should use guardians that can respond quickly to suit their fast-moving needs.
“If you’re doing degen stuff with on-chain contracts, you may need to act quickly: pull money out if a contract gets a vulnerability, move money around if you are close to being liquidated, etc. If your needs include this, then you want to find guardians who can act quickly on short notice.”
Finally, Buterin recommended testing each guardian at least once a year, as this will confirm that they “haven’t forgotten or lost their accounts.”
Given the ever-growing rate of crypto scams and hacks over the past few years, and several crypto firms going bust last year, maintaining sufficient wallet safety procedures has never been more important.
Vitalik Buterin, one of the most influential thought leaders in the blockchain and critical asset space, recently suggested that having a diversified set of guardians for self-custody is essential for a secure crypto-asset lifestyle.
His thoughts came in response to a widely-observed trend of custodied assets in which a single institution or custodian holds a large amount of digital assets of a particular individual, leaving the holder with little to no freedom or options. This one-point-of-failure approach often results in a single set of weaknesses or failure points that can prove catastrophic in the event of a security breach, hacks or frauds.
Buterin, who is renowned for his cutting-edge ideas and initiatives in the blockchain space, said the answer lay in creating a ‘circle of trust’ and shared responsibility between the custodian, the individual, and the guardians. This decentralised approach would ensure that no single entity holds too much control of assets and help prevent the congregation of assets to escape the benefit of diversification.
A set of guardians in the custody space may include institutions such as banks and financial services companies backed by Software-as-a-Service (SaaS) providers, who can help securely and properly store the digital assets of their users. Having a mix of these from different regions or jurisdictions might offer the backing that individuals need.
When done correctly, the guardians can help decentralise custody, ultimately resulting in fewer weak points of failure and better safety for everyone. As Vitalik Buterin aptly articulated, “build a diversified set of guardians, who, each taken alone, are compromised, but all together are secure.”
In such a way, effective and safe self-custody of individual’s digital assets, better personal asset protection and more diversification are all possible, thanks in part to the wisdom of Vitalik Buterin.