MultiSig

MultiSig (Multi Signature) is a type of signature that requires more than one signature to access the cryptocurrencies contained in a wallet. Multiple signatures are required to gain access to crypto as well as to send it.

Normally, with a single-signature wallet, there is only one private key. This can be ideal if users want to access their wallets on their own, or when there aren’t absurdly high amounts of crypto in their wallets.  With these types of wallets, users have access to their wallets after they have shown their private key once. Because of this, there is only one digital signature to do with the private key that users have.

With a MultiSig wallet there are several private keys. These private keys are needed to create a digital signature. Let’s say a user has a wallet with 3 private keys. Only the combination of these three keys could create the digital signature. With only one or two keys the user cannot create a digital signature and therefore he does not have access to the funds in the wallet.

Different types of Multi Signature wallets #

The technique of Multi Signatures could be applied in different ways. There are therefore different types of MultiSig wallets. Each type has its advantages and disadvantages, and can therefore be used perfectly in a certain situation, while other types are not suitable for the same situation.

2-of-2 MultiSig Wallet #

This type of MultiSig is best to be compared with two-factor authentication (2FA). Here a user needs to enter a password and code (which will be sent to your email address, phone number or application). Users will only be able to access their accounts if both their password and code are correct: 2 of the 2 must be correct.

We are talking about 2-of-2 MultiSig wallets here. In this case there are 2 private keys, and to make a transaction or gain access, users will need to be in possession of both private keys. For safety reasons, the private keys could be kept on two different devices.

The advantage of 2-of-2 MultiSig is that it is more secure than single-signature. The downside is that users lose access to their wallet when they lose one of the private keys.

2-of-3 MultiSig Wallet #

With a 2-of-3 MultiSig wallet, there are three different private keys. However, if a user wants to access or make a transaction, he only need 2 of the 3 private keys. Exchanges often use this type of multisignature. They store one private key online, one offline and one private key with an external security company. If one of the private keys is hacked, the wallet is still not vulnerable.

1-of-2 MultiSig Wallet #

Then there are also 1-of-2 MultiSig wallets. This type of multisignature is especially suitable for people who share a wallet together. Suppose a user has crypto on a wallet with a (business) partner, and both need access to the same wallet.

It is safer to both have their own private key. To access the crypto (or send funds) they only need one of the created private keys.

Of course, it is also possible to create multiple private keys, which is useful when several users are sharing the same wallet. They could then create 1-of-3, 1-of-4 but also 1-of-5 MultiSig wallets. Be careful, because the more private keys there are, the greater that a private key will be stolen. Because  only one private key is needed to gain access to the wallet, it is easy for hackers to channel funds after they come into possession of a private key.

The pros and cons of MultiSig #

Pros #

• Cryptocurrency is kept more securely. Because the wallet needs multiple signatures, funds are a lot more secure in a Multi Signature wallet than in a single-signature wallet.
• Independent on one device. If someone knows the code of the wallet (and the owner is not on time with the recovery), the funds are lost. This problem won’t occur with a Multi Signature wallet.
• Handy for people who travel a lot. Usually when someone travels a lot, he will often have to move his hardware wallet. It is then extra safety measure to use MultiSig. By doing so, users ensure that, if they lose their wallet, no one else but themselves gains access to their funds.
• Can serve as escrow. A third party could have one of the signatures, so that MultiSig can be used to perform an escrow.

Cons #

• Recovery is difficult. Restoring a MultiSig wallet is difficult because users have to deal with multiple seed phrases. This means more time and effort has to be spend into recovering the wallet.
• Setting up is not easy. Setting up a MultiSig wallet is more difficult than setting up a normal wallet. Users have to deal with multiple signatures and seed phrases. There’s also the need some technical knowledge to setup a MultiSig wallet.