What is MultiSig Wallet?

3 min readJun 23, 2022

Digital wallets using multisignature addresses are known as MultiSig wallets. In other words, for a crypto transaction to be signed and authorized, more than one private key is required. In some cases, this may mean that several different keys are used.

Security-wise, coins and tokens must be stored to reduce the risk associated with a single point of vulnerability that could compromise the wallet entirely. If only one private key is required to sign a transaction, theft or loss could pose a significant risk to your assets.

To sign a transaction, it is sometimes necessary to have two, three, or even more private keys from different sources. This problem can be mitigated by using a wallet that requires more than one private key for transaction authorization. A multisignature address is enabled by many blockchains, and many wallet and exchange providers use a MultiSig wallet to safeguard their clients’ funds.

Understanding MultiSig

A blockchain transaction is typically signed with only one private key. However, many blockchains allow users to create addresses that require more than one private key to be successfully signed. If you use a 3-of-3 wallet, only the keys specified by the address can be used (for example, yours, your spouse’s, and your security company’s key).

Many combinations exist, such as 2-of-2, 3-of-3, 2-of-3, and even 1-of-2. Creating a signature and authorizing a transaction can only happen if the necessary number of private keys are used. In most cases, your assets are still protected even if one of the keys is compromised.

MultiSig Wallet Essentials:

● A MultiSig wallet authorizes cryptocurrency transactions using several private keys.

● They can be set up to enable the generation of signatures by each set’s private keys.

● While allowing several keys to sign a transaction improves usability, holding private keys in various locations increases security.

● Popular varieties of MultiSig wallets include:

n-of-n: More than one key must be used to authorize a transaction. The signature must be generated using each key. (i.e., 2-of-2, 3-of-3).

n-of-m: Transactions require the authorization of some keys, but not all of them (1-of-2, 2-of-3, 3-of-5, etc.).

● The specifics of various transactions and funds in the wallet are visible to all co-payers connected to it.

● A special recovery phrase is given to the copayers. On the other hand, if one of the copayers forgets their recovery phrase, there won’t be enough copayers in the wallet to sign the transaction.

● Multiple co-payers must sign a transaction for transmitting funds from a multisig wallet, strengthening its security.

Types of MultiSig Wallets:

MultiSig wallet 2-of-2:

The 2-of-2 multisignature technique is used in wallets secured by two-factor authentication. The goal is to store private keys on two different gadgets. Transactions cannot be approved without a signature. The 2-of-2 MultiSig wallet boosts security but comes with the chance you won’t be able to access your money if one of the devices is compromised.

MultiSig wallet 2-of-3:

This particular variety of MultiSig wallets needs two of the three active private keys to approve transactions. Exchanges frequently employ them to increase the security of their hot wallets. The second private key, often referred to as a “paper” backup, is kept offline on a separate device by an exchange that supports 2-of-3 MultiSig addresses. A different security firm keeps the third secret key. Two other organizations hold private keys, so even if one of them is compromised, the wallet is still secure. The offline backup further secures the hot wallet if the security partner goes out of business.

MultiSig wallet 1-of-2:

Multiple users can share funds using multisig wallets. With a shared wallet, you can give a trusted individual access to funds by setting up a wallet that allows any of the two keys to creating a signature. Although both keys are unnecessary, each can operate independently with the funds.

(written by Catherine S Thomas)

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