Clear DefinitionsMulti-Signature Wallet
2 min read
Pronunciation
[muhl-tee sig-nuh-cher wol-it]
Analogy
Think of a multi-signature wallet as a bank safe deposit box that requires multiple keys, held by different people, to be inserted simultaneously to open it. No single person can access the contents alone; a predefined number of keyholders must agree and act together to unlock the funds.
Definition
A type of cryptocurrency wallet that requires two or more private keys to authorize a transaction. It operates on the principle of shared control, where multiple co-signers must approve transactions before they are executed, enhancing security by eliminating a single point of failure. Also known as a Multi-Sig Wallet.
Key Points Intro
Multi-signature wallets enhance security and enable distributed control over cryptocurrency funds by requiring multiple approvals for transactions.
Key Points
Enhanced Security: Protects against theft or loss of a single private key, as multiple keys are needed to move funds.
Shared Control: Allows multiple parties to collectively manage funds, ideal for businesses or group investments.
Redundancy: If one key is lost or compromised, the funds remain secure as long as the other keys are safe and the threshold isn't met by the attacker.
Customizable Policies: Can be configured with an M-of-N scheme, where M is the required number of signatures out of N total authorized keys (e.g., 2-of-3, 3-of-5).
Example
A company uses a 2-of-3 multi-signature wallet to manage its treasury. Three executives each hold one private key. To make a payment, at least two of the executives must sign the transaction with their respective keys. This prevents any single executive from misusing company funds and protects against a single key being compromised.
Technical Deep Dive
Multi-signature (multi-sig) addresses are created using a special type of script (e.g., P2SH - Pay-to-Script-Hash in Bitcoin). When setting up a multi-sig wallet, N public keys are specified along with a threshold M (the minimum number of signatures required). To spend funds from a multi-sig address, a transaction must be created and then signed by at least M of the private keys corresponding to the initially specified public keys. The blockchain network verifies that the provided signatures satisfy the M-of-N condition defined in the script before validating the transaction.
Security Warning
While multi-sig wallets enhance security, they also introduce complexity. If too many keys are lost and the minimum signature threshold (M) cannot be met, funds can become permanently irrecoverable. Proper key management and succession planning for keyholders are critical.
Caveat
Setting up and managing multi-signature wallets can be more complex than single-signature wallets. It requires careful coordination among keyholders. If keyholders become uncooperative or unavailable, accessing funds can become difficult. The security relies on the independent security of each key and the integrity of the keyholders.
Multi-Signature Wallet - Related Articles
No related articles for this term.