What are MultiSig Wallets and How do They Work?

When a transaction via cryptocurrency occurs, the network and the blockchain backing the network needs to know for certain that the transaction is legitimate. One of the solutions that was developed is known as “multisignature” or “multisig,” which refers to the requirement of multiple keys to authorize the transaction. Let’s talk a little more about multisigmultisig wallets, and how they work. 



The primary concept behind multisignatures is by no means anything new. In fact, they date back hundreds of years to monasteries trying protect the security of crypts which held precious relics. The leader of the monastery would give the resident monks only parts of crypt keys so no monk would be able to gain access alone and potentially steal the artifacts. Jumping forward, we also see this principle in science fiction: if you’ve ever seen Star Trek III: The Search for Spock, Kirk and the crew of the Enterprise need to self-destruct the ship; in order to do so, Kirk provides his security key, as well as two more provided by his crew to initiate the self-destruct sequence. Multisigs use these exact principles. 


Let’s focus back in and discuss single-key versus multisig. You could probably infer that single-key access only requires one key to sign transactions and that anyone who has a private key is able to transfer monies at will. So, while managing a single-key address is faster and easier than a multisig, but there are a number of issues, specifically concerning security. By having a single key, the funds are protected only by a single point of failure, so if that point does fail, then all those funds may be compromised. 


This issue led to the development and popularization of multisig wallets. Unlike single-key access, the funds can only be moved if multiple signatures are provided, signatures which are generated through the use of different private keys. Depending on the way the multisig wallet is set up, it may require a different combination of keys; there are a few ratios that are used during this configuration.

20210210_SAC_Safe_1200x600Multisig wallets require multiple keys to access funds.



The most common of these ratios is the 2-of-3 ratio in which three signature addresses are affiliated with the wallet, but only two of those signatures are needed to access the funds. As stated, there are a few variations though, including 2-of-2, 3-of-3, 3-of-4.  


When using a multisig wallet, users can prevent the problems that come with the loss or theft of a single private key—so even if one of the keys is compromised, the funds are still perfectly safe. Naturally, in the configurations requiring 3, 4, or more keys, the funds are that much safer, but with the drawback of needing to gather more information in order to access them. 


One other potential disadvantage is that since blockchain, blockchain wallets, and multisig addresses are all relatively new, it may be difficult to seek legal recourse if something goes wrong since there is little in the way of legal precedence and there is no legally-recognized custodian of funds deposited into a shared wallet with multiple keyholders. 


So, despite a few potential disadvantages, multisig wallets potentially have many fascinating applications: beyond Bitcoin and other crypto transactions, they may be used for businesses and escrow transactions. But if you’re going to start realizing the possibilities of multisig wallets, you’re going to need some technical knowledge, and the team at SIMBA can help! So, for all your blockchain and smart contract needs, contact us today and let’s explore the possibilities together.