What is a multi-signature wallet?
Since time immemorial, security has been everyone’s concern. From keeping one’s life safe to safeguarding property ownership to wealth protection, security is tops against threats of loss or theft for one’s peace of mind.
In today’s age of digital technology, the conversion of assets from physical to virtual value is increasing with almost anything from paper to real estate being represented via tokenization, beginning with the conversion of fiat money to cryptocurrency.
That said, matters of concern now rest with securing these digital assets, whether personally in a crypto wallet or a custody service. Since digital value transfer traverses the Internet space, securing it from malicious interception is a must.
Enter multi-signature as a solution.
Multisignature in a Nutshell
Multisignature, otherwise known as multisig, is a digital signature codification that requires the use of multiple keys to verify a transaction. Responsibility is distributed among signatories, thereby eliminating a single key as a single point of failure. The wallet is kept even if a single key is lost, and the address is not easily compromised. The standard option is the use of a 2-of-3 key combination wherein two signatures out of three keys are required to sign a transaction. Thus, one signature alone cannot execute a transaction. So, even if a thief steals one key, the stored funds cannot be carted away. Some other multiple key combinations are: 1-of-2 which can be used by a couple’s petty cash joint account. 2-of-3 is for the parents’ account intended for their child. A 2-of-3 combination can also apply to businesses with a hot wallet. Other multiple key combinations exist according to need with some with as many as 8 addresses for a quorum or based on weight. Ethereum applies smart contracts to proxy multisig transactions.
For an address to be authorized on the blockchain, it needs a master key to sign its transactions. The owner of the address must keep the master key in confidentiality. The downside in signing transactions is that it can inadvertently expose the master key each time it is used. It may also be that keys are misplaced, lost, or stolen, resulting in the wallet funds being left inaccessible forever. Address owners must, therefore, exercise great care in keeping their keys.
Multisig offers a solution over the disadvantages of single key accessibility where if the key is lost, so are its funds. When more than one key is required to sign transactions, it provides the wallet a higher degree of security from theft and prevents loss of funds when one or more keys are misplaced.
Having a multisig wallet requires more digital signatures to verify or sign a transaction, which means that your wallet is more secure. Even a malicious user who was able to steal one of your co-signers keys cannot move your wallet funds without the other signatures.
A word of caution, though. When trying to buy cryptocurrencies, be sure to deposit the funds in a wallet that you own, and only you can access it, and not in a multisig wallet even if you created it. If somebody tries to ask you to join a multisig wallet to be able to send you money, a scammer is out to lure you.