One of the major concerns in blockchain and cryptocurrency is security. Security is an important aspect of the blockchain world, seeing as assets and finances are involved. There have been cases where assets were stolen from a wallet or where minor mistakes lead to asset loss.

One way to tackle security issues when it comes to cryptocurrency wallets is using a multi-signature (multisig) wallet. It seems like an ideal solution because, just as its name suggests, it requires multiple signatures before a transaction in a wallet is approved.

What is a Multi-Signature Wallet?

Multi-signature(multisig) wallets are referred to as wallets that require multiple keys to authorize a Bitcoin transaction, rather than a single signature from one key.

It is a cryptocurrency wallet that requires more than a single private key before a transaction is approved. Before a transaction is signed and sent out, multiple users will need to provide their signatures. It works in a similar way to joint accounts in a bank, where the signature of multiple account holders will be required for transactions to take place. There can be different numbers of signatories to the wallet, but the minimum number is two (2).

With a multi-signature wallet, you can choose a group of private keys that can sign for a transaction to take place, and also the number of signatories required for a transaction to take place. For instance, you may assign 5 private keys as signatories to the wallet, and require that at least 4 of those assigned keys sign before a transaction can take place in the wallet.

Using multisig wallets can reduce fraud cases as well as other issues that lead to loss of assets because unlike when a single signature is needed, now, multiple signatures are needed which means that multiple numbers of people will have to review a transaction before it happens. In the process of the various keys being provided, if something looks sketchy, a signatory will most likely notice and call the attention of others to it.

Multi-Signature wallets provide an additional layer of security to wallets on the blockchain, because requiring more than a key before a transaction takes place means that a cybercriminal who is trying to break into the wallet will now have to do more work than he would originally do if the wallet was a single-signature wallet.

Use Cases of Multi-Signature Wallets

A major reason why most people would opt for a multisig wallet is because of the security it offers, and that's all we have talked about so far. However, there are other instances where it can be useful. Let’s discuss them.

• Decision Making: Multisig wallets will be very useful for organizations or businesses. When a joint account is created, a single user will not be able to access the funds without a majority of stakeholders agreeing with the transaction. An example can be a DAO(Decentralized Autonomous Organization) that has raised some funds. Using a multisig wallet will control access to the wallet and ensure that majority of the stakeholders agree with the decision of what to spend the DAO’s fund on.

• Escrow transaction: In a transaction between two parties, a 2-of-3 multisig wallet can be set up, and a mutually trusted third party/arbiter is given the third key. If something goes wrong during the transaction, the arbiter comes in and judges who is wrong or right and whom the item in the transaction should be given to.

• Two-Factor Authentication: When a multisig wallet is created, a user can decide to make it a 2-of-3 wallet and store the different keys on his different devices. This will make it difficult for his wallet to be hacked if a single device is compromised. A good practice when using a multisig for two-factor authentication is to ensure that all keys are not required before the wallet can be accessed. This is to prevent issues that will arise if one of the devices gets lost.

Conclusion

Essentially, multisig wallets are a good development and a great addition to technology. Its application is useful and will help in securing wallets and funds of people who use it. Hopefully, we see an increase in its usage in the future and more use-cases for it.