Multisig wallets have come into general use in the crypto industry. The concept existed long before the advent of crypto. Multisig literally means ‘multisignature’. This technology is used as a means of advanced security for the assets on the wallet. Read on to learn how to use Multisig and what it is good for.
Multisig technology is utilized as a special type of digital signature. It allows several people to sign different kinds of documents together as a group. This technology was first used in the crypto industry in 2012, leading to the creation of special multisignature wallets. Multisig is mainly used for the advanced security of assets.
Here’s a simple example, the one from the real world. Two chummies decided to buy something precious. In order to store this valuable item, they purchased a safe with two locks. They shared the keys and then, to open the safe, they have to do it together.
When it comes to digital segment, it’s all the same — two or more signatures can be used to access a Multisig wallet.
Standard keys and multisignatures
Typically, digital assets are stored at a standard address with a single key. Funds can be kept on the exchange or in a separate wallet. It turns out that whoever has access to both the key and the wallet can make transactions on their own, without anyone logged in. This implies that if a malicious user gets access to the key, there is nothing to prevent him from taking possession of all the funds.
Possessing a single key is, of course, more convenient and easier than a multi-signature wallet, but it still creates a number of security problems, an example of which we gave above.
Besides, a standard single-key address would not work for companies that deal with digital assets. If all of the company’s assets are stored at the same address with a single key, it will mean that it is held by one person or even a group of people. This is not the safest option.
That is when Multisig wallets come to the rescue, solving these problems. Multisignature addresses have a great variety of combinations. The most common one is 2-of-3. It goes to show that only two keys out of three are needed to access the funds. However, there are other variations – 2-of-2, 3-of-3, 4-of-5, etc.
Users who manipulate Multisig wallet prevent problems with the loss or theft of the private key.
Consider this example: you decide to create a 2-of-3 multisig wallet, and then you decide to keep your keys in different places: in your laptop, on your phone and on a piece of paper. Even if an intruder manages to gain access to one of the devices, or if you yourself lose one of the keys, there will be nothing to worry about. Similarly, phishing attacks and malware infections are less likely to succeed because the hacker is likely to gain access to only one device and key.
Directors of any company can use multisig wallet to control access to funds. For instance, if they decide to install a 4-of-6 wallet, six keys are given to each director. No individual director can misuse funds. Therefore, only those decisions that are agreed upon by the majority are made.
Despite all the strengths of Multisig wallet, it also has weaknesses. To cite one example, there is a story about five entrepreneurs from China who decided to invest in bitcoin. Their investment was long-term, so they used the multisig wallet. Each of the entrepreneurs had their own key to the wallet. They chose the 5-of-5 combination, which means you need all the keys to access the wallet. The story ended with one of the entrepreneurs dying suddenly of a heart attack a few years after investing. Since no one knew where the key of the breathless entrepreneur was kept, access to the wallet was lost forever.
Multisignature is a good solution for those who store large amounts of cryptocurrency and want to protect themselves from cybercriminals. Moreover, this technology is worthwhile for companies to ensure that its funds are used only by mutual agreement of all directors.
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