Why Multi-Sig & Non-Custodial

Custodial vs. Non-Custodial

In the simplest terms, users do not own private keys required to gain access to their digital assets when using custodial wallets. Non-custodial wallets allow users to own and manage the private keys; therefore, non-custodial wallets allow users to be the real owner of their assets.

Custodial wallets provide users with the convenience factor of not having to manage their private keys. However, custodial wallets are more vulnerable to financial losses when 3rd parties take control of user assets.

When a user deposits assets into a custodial wallet controlled by a centralized entity (e.g. centralized exchanges), the real ownership of the assets is transferred from the user to the exchange. Non-custodial wallets can mitigate risks associated with custodial wallets to some extent.

Single-Sig vs. Multi-Sig

However, having a single user manage a wallet’s private key, which is called single signature (single-sig) non-custodial, can be risky too, because that user might lose the private key or inadvertently expose the private key to hackers. For organizations and businesses, relying on a single user to manage the private key to access an entity’s assets lacks decentralization and creates a single point of failure.

The optimal solution is to use a multi-signature (multi-sig) non-custodial wallet that requires two or more private keys to sign and send a transaction, similar to accessing a safety deposit box in a bank’s vault by the box owner.