Ethereum Co-founder Highlights Pitfalls in Relying on Hardware Wallets

Vitalik Buterin, co-founder of Ethereum (ETH) and a top crypto industry player highlighted the potential pitfalls of exclusively relying on hardware wallets for safeguarding cryptocurrency holdings. 

According to his post on X, Buterin articulated concerns over the associated risks, stressing the necessity of diversifying security protocols to mitigate vulnerabilities. Also, he advocated for decentralization in security frameworks, and multisig (multi-signature) setups adoption as a more reliable alternative.

Buterin Advocates Multisig Approach for Decentralizing Security

Buterin’s sentiments underscore a critical perspective within the cryptocurrency community, particularly as the value and adoption of digital assets continue to surge. He pointed out that using a hardware wallet may lead to certain risks, such as losing seed phrases or unintentionally compromising access to funds. He made a statement, stating that he prefers the use of multisig to store his funds and that it helps him save more than 90% of his total funds.

Multisig involves using several signatures to validate a transaction, which provides an additional level of security compared to single-signature wallets that are usually utilized with hardware wallets. Buterin emphasized the importance of the multisig method that entails the distribution of keys among several parties. This approach involves the user holding some keys and a trusted individual holding the rest. Meaning, that only the user is aware of the identity of the other.

Notably, this approach fosters resilience against individual points of failure and enhances overall security by dispersing trust across a network of stakeholders.

Vitalik Buterin Talks About ETH Challenges

According to Buterin in January, the largest remaining challenge for ETH is privacy and it has a potential solution. He came up with the idea of “stealth addresses,” which he claimed has the potential to protect users by making peer-to-peer transfers of non-fungible tokens (NFTs) and registrations for the Ethereum Name Service (ENS) anonymous. 

Ethereum’s co-founder stated that to prevent the connection between the stealth address and the user’s meta-address from being publicly observed, a “Diffie-Hellman key exchange” and a “key blinding mechanism” would be created. Also, he described how two parties can conduct private on-chain transactions in his blog post.