Multi-signature wallets
What is multisig wallets
Multisig (short for “multisignature”) wallets are a type of cryptocurrency wallet that require multiple signatures from different parties to authorize a transaction. These wallets are designed to enhance the security of cryptocurrency holdings by requiring more than one person or entity to approve any transactions that are made.
In a standard cryptocurrency wallet, a single private key is used to sign transactions, and whoever has access to that private key can move the funds. However, with a multisig wallet, multiple private keys are required to sign off on a transaction before it can be executed. For example, a multisig wallet might require two out of three parties to sign off on a transaction before it can be processed.
Multisig wallets are often used by businesses, high net worth individuals, and anyone who wants to secure their cryptocurrency holdings with an extra layer of protection. They can help prevent fraud and theft by requiring multiple parties to agree on any transactions. Additionally, multisig wallets can be useful in situations where a single person or entity should not have complete control over the funds, such as in joint ventures or partnerships.
The history of multi-signature wallets
The concept of multi-signature wallets has been around for several decades, long before the advent of cryptocurrencies. The first multi-signature system was developed for use in traditional banking systems in the early 1990s, and it involved the use of multiple keys to access a bank vault or safety deposit box.
In the context of cryptocurrencies, the first multi-signature system was introduced in 2011 by Bitcoin developer Gavin Andresen. He proposed a system called “multi-sig” that would allow users to require multiple signatures to authorize transactions.
The idea gained traction in the Bitcoin community, and in 2012, the first multisig Bitcoin wallet was created by Mike Caldwell, the inventor of the physical Bitcoin coin. Caldwell’s wallet required three signatures to authorize a transaction, and it was designed for use by high net worth individuals and businesses.
In 2013, the popular Bitcoin exchange BitGo launched a multisig wallet that allowed users to set their own custom rules for how many signatures were required to authorize a transaction. This was a major step forward for the technology, as it allowed users to tailor the security of their wallets to their specific needs.
Since then, multisig wallets have become increasingly common in the cryptocurrency space, with many exchanges and wallet providers offering them as a standard feature. Additionally, the development of smart contracts on blockchain platforms like Ethereum has opened up new possibilities for using multisig systems to create more complex and secure financial arrangements.
How multi-signature wallets works
Multi-signature (multisig) wallets work by requiring multiple signatures, or approvals, before a transaction can be executed. Here’s a step-by-step breakdown of how a typical multisig wallet works:
- Creation of the multisig wallet: The multisig wallet is created with a specific number of required signatures needed to authorize a transaction. For example, a 2-of-3 multisig wallet requires two out of three signatures to execute a transaction.
- Distribution of the private keys: The private keys are distributed among the authorized signatories of the wallet. Each signatory holds a unique private key that is used to sign off on transactions.
- Initiation of a transaction: When a transaction is initiated, it must be signed by the required number of signatories before it can be executed. For example, if the wallet is a 2-of-3 multisig wallet, at least two signatories must sign off on the transaction.
- Verification of the transaction: Once the required number of signatories have approved the transaction, it is broadcast to the network for verification and confirmation.
- Execution of the transaction: The transaction is executed and the funds are transferred according to the instructions provided.
In essence, multisig wallets create a system of checks and balances that make it more difficult for unauthorized individuals to access or move funds. They are often used by businesses, high net worth individuals, and other parties who want to increase the security of their cryptocurrency holdings.
The most popular multi-signature wallets
There are several popular multi-signature (multisig) wallets available in the cryptocurrency space. Here are a few examples:
- BitGo: BitGo is a popular multisig wallet provider that offers both individual and enterprise-level wallets. Their wallets are highly secure and customizable, and they offer a range of additional features such as insurance, audit reporting, and automated policies.
- Casa: Casa is a multisig wallet provider that offers both hardware and software wallets. Their wallets are designed to be user-friendly and highly secure, and they offer a range of features such as key backup, key rotation, and emergency access.
- Ledger: Ledger is a hardware wallet provider that offers multisig support through their Ledger Live software. Their wallets are highly secure and portable, and they offer a range of additional features such as a built-in exchange and support for multiple cryptocurrencies.
- Trezor: Trezor is another hardware wallet provider that offers multisig support through their Trezor Suite software. Their wallets are highly secure and user-friendly, and they offer a range of features such as multi-currency support and passwordless login.
- Electrum: Electrum is a popular software wallet that offers multisig support through their Electrum MultiSig wallet. Their wallet is highly customizable and secure, and it offers a range of features such as cold storage, hardware wallet integration, and support for multiple cryptocurrencies.
These are just a few examples of the many multisig wallet providers available in the cryptocurrency space. When choosing a wallet, it’s important to consider factors such as security, usability, and additional features, as well as the specific needs of the user.