A simple explanation of what a "multisig" crypto wallet is
One of the main pillars of the cryptocurrency market is the corner of maintaining and storing digital currencies correctly and safely.
Therefore, in many of the articles included in the Arab Bitcoin, we focus on cryptocurrency wallets and how to store and protect digital currencies safely and correctly.
Among the mechanisms that help increase the security of a digital wallet are multiple signatures.
The multi-signature wallet technology was first applied to Bitcoin addresses in 2012.
Multiple signature can be used in different contexts, but most use cases are related to security concerns.
Here is a simple guide and explanation of what a "multisig" crypto wallet is.
How does a "Multisig" crypto wallet work?
With a simple example, a “Multisig” crypto wallet can be likened to a box that holds valuable deposits.
This box has two locks, meaning it needs two keys to open.
A key held by “Ali” and a key held by “Mustafa”.
The only way to open the box is by providing both keys that “Ali” and “Mustafa” carry at the same time, so no one can open the box without the consent of the other.
Basically, money stored on a multi-signature address can only be accessed with two or more signatures.
Therefore, using a "multisig" wallet allows users to create an extra layer of security for their funds.
But before we proceed, it is important to understand the basics of a standard Bitcoin address, which is one-key rather than multiple-key.
As it is known, the Bitcoin address needs one private key that controls the movement of the Bitcoin associated with it.
Bitcoins are usually stored in a standard single-key address, which means that anyone holding the corresponding private key can access the funds.
This means that only one key is needed to sign transactions and that anyone with the private key is able to convert currencies at will, without anyone else's permission.
Although single-key address management is faster and easier than multi-signature key, it presents a number of issues, particularly with regard to security.
By having one key, money is protected by one party and by failure the protection fails as a whole.
This is why cyber criminals are constantly developing new phishing techniques to try to steal cryptocurrency users' money.
Additionally, single-key addresses are not the best option for companies participating in cryptocurrencies.
Imagine that the funds of a large company are stored at a standard address that contains one private key.
This means that the private key will be entrusted to one person or several individuals at the same time, and this is clearly not the most secure method.
For example, the death of this person or his decision to disappear with the company money is very easy.
So safety mechanisms have evolved to conserve more funds.
Multiple signature wallets offer a potential solution to the aforementioned problems.
Unlike a single key, funds stored on a multi-signature address can only be transferred with the consent of multiple key holders.
There are many types of multiple signatures 2, 3, 4 and 5 ...
Uses of a "Multisig" crypto wallet:
Increased security:
By using a "multisig" wallet, users can prevent problems arising from the loss or theft of their private key.
So even if a key is hacked, the money is still safe.
Imagine Ali creates a wallet that holds three keys.
Each key stored in a different device (computer, phone, tablet)
Even if Ali's phone was stolen, the thief would not be able to access the wallet using only one of the three keys.
Likewise, phishing attacks and malware infections are unlikely to succeed because a hacker most likely has access to one device and only one key.
Regardless of the malicious attacks, if Ali loses one of his private keys, he can still access his funds using the other two.
Documentation has two factors:
By creating a "multisig" wallet, the movement of funds on the wallet requires two keys, Ali can create a two-factor authentication mechanism to access his funds.
For example, “Ali” could have one private key stored in his laptop and the other in his mobile phone (or even on a piece of paper).
This would ensure that only the person with access to both keys was able to conduct a transaction.
However, keep in mind that using "multisig" as two-factor authentication can be dangerous, especially if it is set as Address 2 of 2.
Whereas, if you lose a key, you will not be able to access your money.
Therefore, using a 2 of 3 setup or an external 2FA service with backup codes would be more secure.
decision making:
The board of directors may use a "multisig" wallet to control access to company funds.
For example, by creating a 4 out of 6 portfolio where every board member owns one key, no board member can misuse the money.
Therefore, only decisions that have been agreed upon by the majority can be implemented.
Cons of "multisig" wallet:
Although "multisig" wallets are a good solution to a host of problems, it is important to bear in mind that there are some risks and limitations involved.
Setting up a "multisig" title requires some technical knowledge, especially if you don't want to rely on third parties.
Additionally, since both blockchain addresses and "multisig" signatures are relatively new, it can be difficult to seek legal recourse if something goes wrong.
There is no legal guardian for funds deposited in a shared wallet with many key holders.
in conclusion:
Although there are some disadvantages, "multisig" wallets have many interesting applications, which makes Bitcoin and other cryptocurrencies more useful and attractive, especially for companies. By requesting more than one signature to transfer funds, "multisig" wallets provide a security. Improved, which adds a significant amount of security to digital wallets.
It is possible to see more future uses of wallets with multiple signatures.