MultiSig Wallets

    Pathik Bhattacharya
    Pathik Bhattacharya
    Published on October 14, 2022 6:44 PM

    Updated on January 16, 2023 1:42 PM

    Multi-Sig wallet requires two or more signatures to enable a crypto transaction using private keys. Consider a lock that needs multiple keys to be unlocked. This gives the lock an additional level of security.
    MultiSig Wallets

    What is a MultiSig Wallet?

    Multisig stands for "multi-signature," a particular kind of digital signature that enables a group signing from two or more people. As a result, a multi-signature is created by fusing several distinct signatures. Although multisig technology has been in the world of cryptocurrencies, the idea behind it before the invention of Bitcoin.

    Coins and tokens must be stored in a way that completely removes the risk associated with a single weak point that might compromise the entire wallet from a security standpoint. If only one private key is required to sign a transaction, your assets are at serious risk of being stolen or lost.

    How A MultiSig Wallet Works?

    Use a wallet that requires more than one private key for transaction authorization in order to minimise this issue. Sometimes it takes two, three, or even more private keys from various sources to sign a transaction. In order to protect their customers' money, wallet providers and exchanges use some variation of a MultiSig wallet, which is a feature of several blockchains.

    We can think of a safe deposit box with two locks and two keys as a straightforward example. Raj is in charge of one key, and Simran is holding the other. One cannot access the box without the other's permission because they both must present their keys simultaneously in order to do so.

    In short, accessing the money held on a multi-signature address requires two or more signatures. Therefore, users can add another layer of protection to their funds by using a multisig wallet. But before moving on, it's crucial to comprehend the fundamentals of a conventional Bitcoin address, which relies on a single key rather than several (single-key-address).

    MultiSig vs Single Private Key

    While maintaining a single-key address is quicker and simpler than one with multiple signatures, it has some drawbacks, particularly in terms of security. Because there is only one key, there is only one point of failure that can compromise the security of the funds, which is why hackers are continuously coming up with new phishing schemes to attempt and steal the money of cryptocurrency users. Additionally, single-key addresses are not the greatest choice for cryptocurrency-related enterprises.

    The potential solution to both of these issues is multisig wallets. Contrary to single-key, moving the money on a multisig address requires multiple signatures (which are generated through the use of different private keys) which is a more robust approach towards security.

    A multisig address may need a different set of keys depending on how it is set up: The most prevalent type is called 2-of-3, in which just 2 signatures are required to access the funds of a 3-signature address. There are numerous further versions, including 2-of-2, 3-of-3, 3-of-4, and so on.

    Types of MultiSig Wallets

    1-of-2 Multisig Wallet

    The flexibility to divide funds among multiple users is another benefit of multiSig wallets. You can configure a wallet such that any of your two keys can sign documents if you wish to share access to funds in a single wallet with a reliable person. However, none of you is required to have both keys, so you can both use the funds on your own.

    2-of-2 MultiSig Wallet

    The 2-of-2 multisignature method is used in wallets secured by the two-factor authentication feature. The goal is to store private keys on two different gadgets. As an illustration, one private key might be kept on a computer and the other on a portable device. No transaction can be approved without both devices signing it. The 2-of-2 MultiSig wallet boosts security, but comes with the chance that you won't be able to access your money if one of the devices is corrupted.

    2-of-3 MultiSig Wallet

    This particular variety of MultiSig wallet needs two out of the three active private keys to approve transactions. Exchanges frequently employ them to increase the security of their hot wallets. One private key is kept online by an exchange that supports 2-of-3 MultiSig addresses, and the other is kept offline on a separate device (often referred to as a "paper" backup). a third party security firm stores the third private key. Private keys are held by two different organisations, so even if one of them is compromised, the wallet is still secure. In the event that the security partner goes out of business, the offline backup further secures the hot wallet.

    Risk Awareness

    Multisig wallets are useful for a variety of issues, but it's crucial to be aware of the risks and restrictions they come with. If you don't want to rely on third-party suppliers, setting up a multisig address involves some technical Methods. Even though the securities are upto the mark, some hackers managed to hack wallets even after so many firewalls. Be aware whenever you give a third party access to your funds and information