How Should Organizations Accept Cryptocurrency? Hardware Wallets, Exchanges, and Multisig
If you run an organization hoping to unlock new sources of funding, accepting cryptocurrency is critical.
Gaining the interest of a truly global community, increased donor anonymity, lower processing fees, and fast processing all provide the strong reasons for why groups should accept cryptocurrency. However, there are few existing resources for how organizations should accept cryptocurrency.
Therefore, in this article we will detail the best practices for enabling cryptocurrency funding at an organization. And as importantly, we will consider the best ways to keep these funds secure, with focus on Ethereum.
To begin, hardware wallets are the most secure way to store your cryptocurrency. Or in other words, “if you do not control the keys to your cryptocurrency then it is not your cryptocurrency.” Keeping your coins on an exchange or web wallet may afford convenience, but potentially increases the possibility of risk vectors such as DNS attacks or exchange insolvency.
Of course, exchanges are necessary for buying and selling cryptocurrency. However, when receiving or holding funds for an extended period of time or until you are ready to trade, hardware wallets set the industry standard.
Hardware Wallets
So here are three options for hardware wallets to set up your Ethereum account by referencing the private key for sending cryptocurrency & the public address for receiving (more information can be found here):
- Ledger: Upon receiving a hardware wallet (the Nano S model, in this case) direct from the company, setup is simple. Initialize the device, and connect to your computer. Create a new wallet, set a pin code (which you need to keep safe, perhaps written on ‘recovery sheet’) Next, write down your 24-word recovery phrase on the sheet provided, in the exact order shown on the LED screen.
This recovery phrase is more important than the device itself. If you lose the device, you can still recover your funds provided you have the recovery phrase. However, anyone who knows this phrase can therefore access your funds. Therefore, keep this phrase very secret, and very safe.
Finally, you can download one of the Ledger Wallets (in this case for Ethereum) to generate an Ethereum account for receiving or sending funds. Here’s the official guide from Ledger, but these descriptions are useful for considering the overall process.
- Trezor: The process for Trezor is similar to Ledger. After buying the device direct from the company, unbox, and plug it in to your computer. Go to wallet.trezor.io, and download the browser plugin. Choose a pin (keep this safe), and generate a 24-word recovery seed. This first initialization will generate a Bitcoin address.
In order to access your Trezor Ethereum address, go to https://myetherwallet.com, choose “Send Ether & Tokens,” and then “Trezor” to see the Ethereum wallet your device has generated. As with Ledger, keep your Trezor pin/recovery seed safe. If you lose the device itself, you can always retrieve your funds provided you have the recovery seed. Here is the official Trezor setup guide.
- KeepKey: After buying direct from company, connect your device. Then download the KeepKey Chrome extension. Update firmware, and initialize your device. Name your device, create a pin (this part is slightly confusing, but it’s meant to deter malware).
Confirm your pin, and create a 12-word recovery sentence. Reconfirm each word, and keep the recovery sentence safe.
Any of these hardware wallets is a good option, and we do not recommend one over another. After successfully setting up your hardware wallet, and generating a new public address, you are now ready to safely receive cryptocurrency donations. Simply share your Ethereum public address on your website, social media or otherwise, and you are now prepared for donations to start flowing in.
Exchange Wallets
But after initializing a hardware wallet, the next step to consider is an administrative process for custody of these wallets. Does your organization entrust the treasurer/CEO to retain sole custody of the access keys? Do you split funds, with certain wallets designated for certain use-cases? You need to outline a system for how the wallets are stored, when to spend the funds, and what is the process for sending to an exchange to convert to fiat.
While it is not recommended to store funds in an exchange wallet for an extended period of time, exchange wallets provide degrees of convenience and the seamless ability to convert to fiat.
Here are three viable options for setting up exchange accounts.
Similar to storing your hardware wallet recovery seeds, administrations need to carefully consider the process for storing login credentials (passwords, email safety, and 2FA). Furthermore, carefully weigh the additional security features provided by each exchange, such as implementing sending limits, 2FA for sending, vetting the list of confirmed devices, etc.
Multisignature (multisig) Wallets
If you are hoping to add another degree of custodial checks & balances beyond the options presented above, multisig wallets may present a viable solution. Although more complex, multi-signature wallets allow multiple people to control the keys to a cryptocurrency wallet. Take the following multisig example: if three people hold access keys to a wallet, funds can only be accessed if at least two of the three total keys are presented. If one of the keys is stolen, or lost, then the funds cannot be absconded with.
While adding another layer of difficulty, sophisticated users can choose from the following multisig wallets for Ethereum. Properly set up multisig wallets will allow multiple people to hold keys to a wallet at one time. Users can set rules like max daily withdrawal limits, and require multiple users to prove ownership in order to send funds. Organizations generally choose from the following multisig wallets to administer large deposits:
Although multisig can afford another degree of accountability, it is only recommended for highly technical users. Improper setup can result in lost funds so please do your due diligence.
Depending on your organization’s preference, one of these three options should suffice. The complexity of the wallet setup correlates directly with the security of the wallet so be cognizant of the pros and cons for each method.
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