What Is a MultiSig Wallet?

In 2022, the public was most concerned about crypto industry safety due to the significant loss of the renowned platform, as well as numerous attacks and scams. Crypto wallets are a gap that is likely to be attacked because the assets are risky if a flaw is discovered. One of the most crucial issues for crypto investors is the safety of wallet usage and transaction. MultiSig Wallets may be the solution to this problem.

What is a MultiSig Wallet?

MultiSig Wallet is a digital wallet that needs at least two signatures or approvals to be accessed to conduct transactions. This will increase the security of storing digital currency assets because more than one private key is needed to approve a crypto transaction.

MultiSig stands for Multi-Signature, a type of digital signing that enables more than two signatures to appear in a document together as a group and requires a combination of the different signatures. Multi-Signature is a concept that already existed in the world of digital currencies before the invention of Bitcoin.

In terms of cryptocurrencies, Multi-Sig was first used with Bitcoin in 2012, which led to the development of MultiSig Wallet one year later. MultiSig has also been applied in various contexts, mostly security-related ones.

Why Should MultiSig Wallet Be Used?

For investor security reasons, MultiSig is the method of storing tokens with less risk from one-way asset access or one-password private key usage for any transactions. Both are risky to the investors’ assets because they could easily be lost or stolen by malicious intentions. To diminish this issue, using a private key with more than two passwords and different sources to do transactions is necessary and somewhat the best way to protect assets.

How does MultiSig Work?

MultiSig Wallet is a crypto wallet that requires private keys with two or more passwords to enhance the security of the assets. Before conducting any transactions, having more than two signatures with a precise number of signatories is essential. The transaction cannot be completed if the necessary number of signatures is missing. As an illustration, we need to use each of the uniquely compatible keys in order to open some special safes.

How many types of MultiSig Wallet are there?

Despite various categorizations, MultiSig Wallets can be divided into two main types. The first is that it only allows transactions if all parties consent or sign. The commonly-found requirement for transaction confirmation is three signatures.

While the other type of MultiSig Wallet does not require all signatures but only needs two out of three or three out of five to conduct the transaction.

Because of the variety in design and construction, there are differences between traditional wallets and MultiSig Wallets when it comes to the signing step in transactions. The traditional one is called an Externally Owned Account (EOA), which is created by the users themselves and is monitored by a private key. In general, EOAs are regarded as “user accounts” created for public members to respond to blockchain.

On the other hand, 'MultiSig Wallets' is a smart contract-based wallet where the user has no control over the transaction process. The smart MultiSig wallets are managed by the owner both on-chain and through code. This process results in MultiSig Wallets being referred to as "Seedless" self-custody or asset security maintenance without Seed code.

Who is suitable for MultiSig Wallets?

Retail investors generally store their digital currency assets in MultiSignature Wallets. However, crypto exchanges and brokers, Over-the-Counter (OTC) trading, investment funds, and crypto firms are those with extra usage. Typically, they store their assets in MultiSignature Wallet. For example, as lots of keys are needed for hackers to gain access, exchanges and brokers distribute keys to system administrators to spread the risk of a hacker attack.

Besides, using MultiSig helps ensure that withdrawing money from the account cannot be done by only one person in the company since MultiSig requires a correct number of signatures to conduct the transaction.

It can also be applied in the legal field to establish joint accounts for family members to transfer assets to heirs and beneficiaries, or sell assets in the event of a family member’s death.

Notice and risk of MultiSig

Though MultiSig can increase security to the holding of digital currency assets, there is still a notice and risk to be concerned about.

For example, MultiSignature Wallet has been used for Bitcoin since the beginning. It has remained too complicated for users without a technical understanding, such as usage setting, which to some extent requires technical knowledge, especially in cases where users do not want a third party to be involved.

In addition, Blockchain and MultiSig are rather new to most people. Since there is no legal custodian for the shared wallet assets with numerous keyholders, it might be difficult to get legal assistance if something unusual occurs.

In conclusion, though MultiSig has a benefit and can solve a number of security issues, there is still a restriction and risk to be considered and researched before use.