If you are an expert in bitcoin trading and manipulation, you should know what multisig means and probably use it for your work. Multisig is a service that allows users to use bitcoin wallets securely and make corporate transactions of money easily. Multisig address can help you to overcome many obstacles that you met during work with bitcoin, and that is why you should know more about this feature. This review will introduce you to the topic of multi-signature wallets and provide a comprehensive guide about their application.
Briefly about multisig
Multisig is an additional option for the security of a bitcoin hardware wallet and easy entrance to funds for several users at the same time. Users can make transactions with multisig only if they enter a determined number of keys that are set into the system. For example, if the wallet configuration requires at least two private keys out of three and you want to make a transaction, you should wait for at least two partners to sign transactions. This feature is similar to two-factor authentication, where a user should apply two keys to make any transaction.
The thing is that not all wallet software support multisig service. If you want to create cooperative access to a bitcoin address and secure your funds from attacks, keep reading this review about multisig to know all the details about this feature.
We will include information about these topics in the article:
- Bitcoin wallet principle of work
- Multisif wallet
- Software for the creation of multisig
Bitcoin wallet principle of work
When you do bitcoin transactions, you change the bitcoin address of the location of the crypto. However, the crypto coins you use are always located in one secure place, and they do not move in the net. The only thing that changes is the lock of the bitcoin wallet.
For instance, if someone sends crypto to another person, he or she just rewrites the lock from their bitcoin wallet to lock from the bitcoin address of another person.
These processes are more complex in real life than we described, but the principle is like that.
There are several types of locks that are prescribed to coin wallets. Any person has an opportunity to create a special lock for their addresses as bitcoin works with a scripting language. So, you can change the type of your lock if you know this language and can work with it.
Types of the locks:
- Not protected lock with access without the private key
- Lock that will be active after depositing a certain amount of crypto (it provides an opportunity to work with crowdsourcing)
- Lock that can be unblocked only after finding of determining the number of blocks
- Lock that can be unblocked only with more than one key — multi-signature
Multisig is one of the types of locks that you can use only after entering several keys. The number of required keys should be determined in settings in advance.
The usual scenario when people use it is when several people want to work with crypto together for their joint business. Partners need to use multisig feature because they want to control all operations made with their funds. So, when one of the partners wants to make a transaction, he or she needs to wait for confirmation from other counterparts who need to enter a personal private key.
This service will not allow one of the participants to steal all money without approval from others. However, two out of three partners can make decisions by themselves without a third one because they will put a required number of private keys.
There are more combinations to set several required keys. Here are some of them with descriptions and purposes of each of them:
- 1 private key out of 2: People use it when they trust each other, and they want to store their money in the same place (for example, couples). In this scenario, the system will ask for only one key to enter, and a single person will be able to make transactions without confirmation of another one;
- 2 private keys out of 2: It is also called two-factor authentication — confirmation of operations by two keys that you keep in different devices (computer and smartphone);
- 2 private keys out of 3: It is called crypto escrow or trustless arbitration — operation when there are three parties, and two of them want two exchange crypto. The third party helps them to solve some disputes if they appear as he or she has the third key. For instance, if the person was supposed to send money to a multisig address and then another participant confirmed the fact of depositing, a third party will not even participate in the transaction. However, if two people declared different things, the third party will find a fair solution for the problem and refund money in case of disagreement (for example, Bitrated);
- 2 private keys out of 3 (another scenario): It is one of the types of paper wallets — the wallet is accessible with two keys, but if you one device with a private key or your single seed is stolen, you can apply the third key. This option will help you to avoid issues connected with the fact that the private key is a single point of failure for single signature hardware wallets.
- 4 private keys out of 7: This option is used by the board of directors when they want to control funds by themselves, and they believe that it is enough to have majority votes to accept some decisions.
Usually, agreement about the number of required private keys is accepted by not only members of cooperation but also by the financial institution. The advantage of bitcoin multisig is that the Bitcoin network controls all these operations by itself. Bitcoin network manages all questions connected with signature entering and checks the security of the transactions from each device.
Multisig is a great opportunity for a group of people to manage their business together and control the decisions of partners about expenditures and shared budget. Moreover, private key in multisig wallets is not a single point of failure because several signatures are required for any transaction. An extra layer of security developed by extension of single signature address to at multisig one provides confidence in the security of investment funds.
Software for the creation of multisig
Not all bitcoin platforms and hardware devices support the multiple signatures option. That is why we prepared a list of multisig software that you can register in to include multiple parties into the exchange process.
Amory is a software wallet that allows clients to generate multisig addresses, but it works only with bitcoin. The team of Amory developed a high-level security system as well as easy to use and practical interface, si that anyone can use their wallets and do not care about the security of funds. This platform is open-source, and they have a desktop version, so you can find it in free access on the Internet. To create a multisig address, you should choose the option “Lockbox” and make multisig setup while generating your bitcoin address.
Electrum is a platform for bitcoin transactions and storage of crypto, and it offers a lot of functions to its users. However, it is complex, and you need to spend some time understanding the interface of this website. It is more suitable for advanced users who know what particular operations they need to perform.
Read a review on Electrum on our website to learn more info about its features and support functions.
Copay is a project BitPay platform, and it was created exactly for multi sig wallets creation for bitcoin cash and BTC. The drawback of Copay is that they have not worked a lot on the interface and it became difficult for beginners to use multisig wallets on this platform. We cannot recommend this platform for usual bitcoin traders as their website on GitHub is suitable now only for technical Bitcoiners.
Multiple hardware wallets are practical for those who want to increase the level of security of their funds. If you are interested in sharing a bitcoin wallet with other people multisig wallet is an essential feature for you. Pay attention to the fact that multisig addresses in comparison to only one signature wallets usually have increased transaction size and fees.
There is more advice on the usage of multi signature wallets:
- You can add multiple keys for your address unlimitedly because there are restrictions about this on most of the platforms;
- Keep your keys in safe places and make copies of them to always have access to your bitcoin wallet;
- Having more than one key from bitcoin addresses can save you from the loss of all the funds as you will be able to make operations with crypto even if you lose one of the keys.
How do Multisig wallets work?
Multisig is a service that allows users to share crypto budgets and use multi-level security. It means that a person can make transactions from a multisig address only if he or she enters several keys required by the system. For example, it will not be enough to provide only your keys if a hardware wallet is shared.
What is Multisig public key?
Public keys are required to make any transaction, but the user should also confirm ownership of the funds with the private key. While you are creating a multisig address, you should include the public keys of every person who will have access to the wallet. They will be able to make multisig transactions only with their public keys if they use a shared wallet.
Is Ledger a Multisig?
Ledger is a hardware wallet that provides an opportunity to make it a multi-signature one. You can set your hardware device in such a way that it will require more than only one key from you to make transactions. Even though cold storage is safer than hot wallets, more signatures will increase bitcoin security and make it easier for you to have a shared account with partners.
How do I create a multisig wallet in the BitPay App?
Unlike with hardware wallets, the process of creation of a multisig wallet will take only several minutes:
- Click the button “Create a new wallet”
- Choose an option of a shared account
- Set cryptocurrency you want to use
- Introduce yourself and other cryptocurrency holders
- Determine the number of required signatures
- Copy and share a crypto address with your partners
Can I be scammed with a multisig wallet?
Unfortunately, yes, as it is with hardware wallets, a multisig wallet can be attacked by strangers. There are a lot of ways they use to steal funds from such kind of wallets, but the most popular one is this:
- Users buy crypto, and sellers send funds to multisig wallet;
- Buyers have access to this wallet, but the sellers can make bitcoin transaction to a different wallet without user confirmation;
- Buyers lose access to transactions and funds.