Right after FTX collapsed, people from the space started advocating decentralization. In fact, stalwarts, time and again, kept emphasizing the importance of self-custody and managing one’s own wallet keys.
The U.S. is now in the midst of a banking crisis, and the community has yet again circled back to the same. They have started re-asserting that self-custody “is the way” and decentralization could help build a better system. According to on-chain data tweeted by Research and Data Analyst, James Straten, around 70k Bitcoin has been taken into self-custody since the collapse of Silicon Valley Bank, justifying the community’s inclination.
In fact, in a recent tweet, Ethereum founder Vitalik Buterin also went on to talk about the said notion. He said,
“Self-custody is important.”
He went on to add that the “social recovery” and “multisig” paths were a “great way” to do so. Elaborating on the same in a Reddit post, Buterin said that he uses a multi-sig wallet personally to store the bulk of his funds. In fact, even the Ethereum Foundation treads on the same path.
Buterin dubbed social recovery wallets to be “a close cousin” of multi-sig wallets. For these wallets, a single key can be used to sign transactions. However, if that key is lost, a group of keys held by other people can be used to recover the funds. In fact, the Ethereum founder went on to assert that social recovery wallets are “much easier” to use than multi-sig wallets. Putting forth his recommendation, he added,
“Once social recovery wallets become mature enough, my recommendation will be to use social recovery for hot wallets that store a small portion of a person or organization’s funds, and multisigs for cold wallets that store a person or organizations’s savings.”
Ethereum founder’s “wallet guardian” choices
Guardians are quite an integral part of the self-custody equation. In the post, Buterin chalked out the choices he personally makes with regard to guardians. First and foremost, he pointed out that it is alright for some of the guardians to be one’s own devices. However, he emphasized that there shouldn’t be too many and said,
“It makes natural sense to have at least one guardian be a wallet on one of your own devices – it doesn’t reduce decentralization to do that, and after all, it is your money.“
Furthermore, he added that according to his rule of thumb, there should be enough guardians controlled by other people. So, even if one disappears, there’d be enough other guardians left to recover funds.
He then highlighted the need to choose guardians who “do not often talk to each other.” In fact, guardians who do not know each other would be ideal because it’d reduce the risk of them colluding. Elaborating on the same, he added,
“Minimize correlations between your guardians as much as possible: don’t choose two guardians who live in the same city (or ideally even the same country), or two guardians who use the same type of wallet, and have a balance between different operating systems.”
Additionally, Buterin asserted that when a guardian is asked to approve an operation, they should “not simply say yes immediately.” According to the Ethereum founder, this would be a “disaster” for security. Highlighting a way to get around, he added,
“My preferred protocol to avoid this is to instruct guardians to ask a security question. That is, when you ask for a confirmation on your operation, the guardian should ask you something that only the two of you and very few other people know.”
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