The problem with any centralized exchange is that it is centralized. All the funds are located at one place, which makes it a weak chain in the link, so to speak. Even Bitfinex, respected by many as one of the more secure exchanges, succumbed to an infiltration of their hot wallet recently.
Now for the first time through a partnership between BitGo and Bitfinex, Bitfinex will now be able to offer individual multi-signature wallets for each customer. This allows them to authenticate funds via the blockchain for transparency while retaining the amount of security Bitfinex is known for.
“Based on BitGo’s revolutionary multi-signature technology, the Bitfinex exchange now provides individual multi-signature wallets for each customer, allowing traders to verify funds on the blockchain for complete transparency while retaining institutional-level security.”
In the past, most exchanges had to sacrifice either speed or security if they wanted to be able to offer accounts where the users could double-check the funds on the exchange in real time via the blockchain. Thanks to BitGo, Bitfinex is now the first exchange to offer this with no compromises to performance or security.
“The trading community has long sought individually verifiable accounts without sacrificing security or performance. With the help of BitGo’s multi-signature technology, the Bitfinex team is very excited to be the first exchange in the world to automate Bitcoin settlements using ‘On-Blockchain’ customer segregated wallets. – Zane Tackett, Director of Community & Product Development at Bitfinex.”
While a muti-sig model for an exchange keeps the exchange in check, it also gives customers instance reassurance due to the fact at any time, traders are able to almost instantly verify funds via the blockchain.
“The industry has been clamoring for exchanges to adopt the multi-sig model, and we’re proud that Bitfinex selected BitGo’s platform to do it. This new level of transparency and security makes breaches such as those of Mt. Gox impossible.”
By making each customers holdings secured behind a unique set of keys, Bitfinex is about to become a very unique exchange. Most running exchanges typically use a shared pool, which is akin to using one set of keys to access everyone’s funds. Thanks to multi-sig, the scenario looks more like everyone has their own set of keys to access their funds.
“Like other current bitcoin exchanges, Bitfinex previously implemented security via a shared pool, similar to using one set of keys to access an entire bank vault. Today, Bitfinex uses a unique set of keys for each user, and separates each user’s funds on the public blockchain. This powerful combination of BitGo’s multi-sig technology with Bitfinex’s exchange mitigates most of the shared pool security risks while simultaneously enabling users to verify their individual holdings on the blockchain.”
While most people will still swear by keeping their own Bitcoin on an individual wallet, if exchanges implemented multi-sig models, storing Bitcoin on your own wallet would be reserved for people looking for the utmost security or for people storing large amounts of storage.
Would you be okay with storing your Bitcoin on an exchange if it was a multi-sig wallet? Do you think other exchanges will follow in Bitfinexs footsteps? Let us know in the comments below!
Photo Source: BitGo, Bitfinex