Jumping head first into the crazy world of crypto space can be a dangerous thing if you don't do your own research first. Hacking incidents such as Mt. Gox exchange, Bitfinex, and many others are nothing new. Another pitfall is managing those private keys as an individual and making sure your coins are safe and secure.
If you have been in the cryptocurrency space long enough, then you know the issue of addressing the loss of keys occupies everyone’s minds. Thus, the reason why people are looking for more secure ways to store their cryptocurrencies. This is where the MultiSig wallet comes into play. Follow along with the ‘Stache as I break down exactly what a MultiSig wallet is, when you should consider using one, and why it's important for the future of mass adoption.
What is a MultiSig Wallet?
To understand the MultiSig wallet, you need to know what multi-signature stands for. Multiple Signature (MultiSig for short) is a scenario where more than one private key is required to authorize a transaction. Most traditional software and hardware wallets use a single signature keys. A user only has one private key which they can use to sign and verify a transaction. This can be risky as losing the private key means that a person cannot re-access their wallet.
However, with a MultiSig wallet, multiple people are required to sign in and authorize a transaction. With MultiSig wallets, cryptocurrencies are gaining corporate use cases.
How Does A MultiSig Wallet Works?
When you are using a MultiSig wallet, it is impossible to access the wallet using only one private key. A certain number of keys out of a predefined set are required to unlock the wallet and authorize any transaction.
For example, when you configure your MultiSig wallet to need at least 3 out of 5 authorized signatures. The wallet cannot be accessed unless three out of the five keys sign in and authorize a transaction. Thanks to the MultiSig wallet, users can still access their coins even when they lose one private key.
Why is a MultiSig Wallet Important?
The MultiSig wallet is essential because of so many reasons. Let's take a look at “James” in a few situations that demonstrate how important a MultiSig can be;
If James uses a multisig wallet and stores 3 different keys on his phone, computer, and tablet, he wouldn’t be affected by the loss of one private key. He can easily access his wallet using the other two keys, ensuring that his funds are safe at all times. Even when one of his devices is stolen or damaged, James can easily sign in to his wallet using the other two keys. Also, phishing attacks and malware infections are likely to affect one device at a time. Thus, making it difficult for hackers to access James’s crypto. With the MultiSig wallet, a users funds are more secure.
When you use a MultiSig wallet, you can create a two-factor authentication protocol for signing into your wallet and authorizing transactions. If James uses a MultiSig wallet, he can have one private key on his mobile phone and another one on his computer. Thus, only a person with access to both keys at the same time can authorize transactions. However, it is advisable that you use more than two devices to store your private keys. You can save the keys in 3-4 devices and need only 2 of the keys to access your wallet.
Unanimous decision making
Multisig wallet is especially important in the case of corporate use. When a company uses a MultiSig wallet, the board of directors could each be given a key. This way, no individual board member has complete access to the company’s funds and they would need more than one key to approve a transaction. Thus, only the decisions agreed by the majority of the board members would be executed.
The MultiSig wallet is also useful in the case of escrow transactions. When a buyer and seller agree on a certain deal, each of them will have a private key. They can involve a third party (escrow) as a mutually trusted judge and give him one key. Thus, we have three keys. Two of the three keys can approve a transaction, ensuring that the deal is honored regardless of what happens and James can feel secure he isn't going to get scammed.
Top MultiSig Wallets
Here are some of the best Multisig wallets for 2020:
Electrum is a MultiSig wallet available for both computer and mobile phone users (Windows, Mac OSX, Linux, and Android). It is a lightweight Bitcoin wallet that has both cold storage and MultiSig features. It can also be integrated with a few third-party hardware wallets including Trezor, Ledger, and Keepkey.
This is perhaps the leading Bitcoin MultiSig wallet currently available. Armory allows users to control their private keys without depending on their servers or that of any other third party. It provides holders with up to 7-of-7 authorizers to approve a transaction. Armory is available for Windows, Mac OSX, and Linux operating systems.
Copay is available on mobile and computer devices (Windows, Mac OSX, Linux, Chrome Extension, iOS, and Android). This MultiSig wallet supports up to 2-of-3 authorizers, and users are entirely in charge of their private keys.
This is a popular MultiSig wallet that is available as a web software and for mobile and desktop devices (Windows, Mac OSX, Linux, Chrome Extension, iOS, and Android). At the moment, BitGo supports up to 3-of-3 keys for approving transactions. Similar to Electrum, you can integrate your MultiSig addresses with BitGo along with a few hardware wallets, including Ledger Nano S and Ledger Blue.
Multisig wallets are popular within the cryptocurrency space due to the various advantages they offer to users. You would have fewer security issues regarding your coins when you use MultiSig wallets over a single signature wallets. I think eventually we will see this become a feature of every major wallet as it really adds a lot to the possible security layers you can employ. Besides, who doesn't like to be as secure as possible when it comes to their money right?
Hope you liked that quick breakdown of what a MultiSig wallet is, why it's important, and a few of the top MultiSig wallets out there! Until next time…
‘Stache That Crypto Friends!