A multisignature wallet ensures that people are able to sign transactions and documents as a group. It is a type of digital signature that is generated via a combination of special signatures. Multisignature was first applied to addresses on the Bitcoin network in 2012. Consequently, the wallet became available the next year. It is similar to having a dual lock that two people share - and both have their unique keys. In accordance with this concept, users need to use each of their keys at the same time to open the safe - this implies that neither of them can open the box without the consent of the other.
With respect to the Bitcoin system and other cryptocurrencies, any funds that multisignature wallet stores can only be accessed as a group. This characteristic, in this way, adds extra security to the wallet. By using a multisignature wallet, individuals can avoid problems related to lost private keys. Even if one key is lost, the funds are still secure.
Generally, multisignature wallets consist of many combinations, and the 2-of-3 remains the most prevalent. This simply implies that only two of the three unique signatures are required to access the funds. There are other combinations. These include 2-of-2, 3-of-3, 3-of-4, and lots more.
What is good about using a multisignature wallet?
Besides adding an extra layer of security to your funds, there are several benefits of using a multisignature wallet. One of these is to create a two-factor authentication system for users. The keys can be stored on the computer system, while the other one can be stored on the phone. This allows that only the people with both keys can access the funds. However, it is highly important to ensure that both keys are safe because once the users misplace one, they will not be able to access their funds - most especially in a 2-of-2 combination. Anyone that plans on using a multisignature wallet can use a 2-of-3 combination and keep all the keys safe.
Apart from this, a multisignature wallet can be employed in escrow transactions. To explain this, imagine Harry trying to secure a service or commodity from Kyle. They both concluded to use Declan as a trusted arbiter. First, Harry would deposit the funds. Once Kyle provides the commodity or service to Harry, they can then both sign by using their keys and complete the transaction. Declan can then step in if any dispute arises. If that happens, Declan can then create his own signature that would be offered to either Harry or Kyle, depending on Declan's judgement.
Multisig wallets are perfect for businesses that adopt the use of a singular wallet to undergo transactions. When using this type of wallet, anyone who is in charge of the company's finances is the only one that can access the funds. In this case, a 5-to-7 combination can be used, which ensures that only majority-agreed decisions can be accepted.
How does a multisignature wallet compare to a single-key wallet?
Generally, single-key wallets are faster and easier to access than the multisignature wallets and this can be considered as both a good and bad thing. It is considered good if the funds must be accessed quickly, but could turn out to be bad if the user loses the single key. In this case, they could lose everything. No matter how accessible they might be, they are vulnerable. People with illicit intentions will exploit this once they take note.
On the other hand, a multisignature wallet is perfect for businesses and companies that are involved in crypto. Serious security issues could arise if the company's funds are secured by a single private key. The multisignature wallet helps in solving this. Yet, as mentioned earlier they have their downsides and they must also be properly protected.
Final Verdict
Multisig wallets provide solutions to serious security issues. They are used by companies involved in cryptocurrency and There are different types that can be used. However, they are not good for beginners. It is still a relatively new technology that can only grow in popularity and influence.