A simple explanation: What is a multi-signature crypto wallet?

TLDR;

.

• Multi-signature crypto wallets require multiple signatures when withdrawing funds

.

• They function as joint bank accounts where a certain number of signers must be present to authorize a transaction

.

• A multisig crypto wallet is ideal for storing project funds to increase accountability and transparency

.

The push to boost crypto adoption involves bridging the gap between traditional finance and crypto. One way to bring the two worlds closer is by creating crypto products resembling those in the conventional space. One such product is a multi-signature crypto wallet that mimics a traditional joint bank account. Here, we explore what is a multisig crypto wallet, how it works, and its advantages.

What is a multi-signature crypto wallet?

First, a cryptocurrency wallet is a storage for your virtual assets. Most wallets are individually owned and a single entity has the power to withdraw funds at will. A multi-sig crypto wallet is a normal wallet with the exception that it's controlled by multiple parties or one party with multiple private keys.

.

The �multi� in �multi-signature� stands for �multiple� meaning that it�s controlled by multiple signatures or signers. What is a signature in crypto? Good question. A signature is the same as a private key.

.

A wallet has both public and private keys. A public key is a sharable address such as a bank account number. The private key is private, like an account PIN; only the account holder or wallet owner knows it.

.

When conducting a cryptocurrency transaction, entering the right �PIN� or private key confirms that you own or control the wallet.

.

Back to our multi(ple) signature scenario. A multisig crypto wallet has multiple private keys depending on the number of signers. When setting up the wallet, the parties can decide how many signatures, out of the total, need to authorize a transaction.

How does a multi-signature crypto wallet work?

With a multisig crypto wallet, any signer can initiate a transaction. However, the transaction will reflect as pending until the other signers append their signatures. The number of signers required for the transaction to go through depends on the wallet�s settings.

.

In some cases, a multisig wallet requires all co-signers to put in their signatures. In other cases, only a subset or group of the authorized co-signers need to sign a transaction. For example, in an 8-of-10 setting, the wallet requires eight out of ten signatures to acknowledge the transaction for it to be valid.

.

Let's use an example where a web3 company has set up a multi-signature wallet to pay its employees. The wallet has four co-signers (the company�s CEO, HR, accountant, and supervisor). At the end of the month, the accountant initiates a transaction, from the wallet, to pay employee X, let�s call him the developer, 5 BTC for work done during the month.

.

The wallet has of 3-of-4 setting. In this case, if three of the four co-signers sign the transaction, 5 BTCs are deposited in the developer�s wallet. Note that the receiving wallet doesn�t need to be a multisig wallet.

What are the advantages of a multisig crypto wallet?

• Boosts security - a multi-signature crypto wallet increases the security of stored assets because it requires more than one individual to sign off on any withdrawal request. This means that even if a malicious actor gains access to the wallet, they can't transfer the funds if the other signers don�t okay the transfer request.

.

• Fewer problems due to loss of a private key - The contents of a multisig wallet are still accessible even when one party losses their private key. However, this works if the wallet doesn�t require all parties to sign a transaction. In contrast, a single-key wallet user loses access to his/her wallet if they lose their private key.

.

• Improves transparency in a collaborative environment - Since no one individual has full control of the wallet, a multi-signature virtual currency wallet improves the transparency of how project funds are spent.

.

• They are customizable - A multisig cryptocurrency wallet is customizable to accommodate the required number of co-signers.

Conclusion

What is a multi-signature crypto wallet? From our discussion above, think of a multisig crypto wallet as a joint bank account that has the capability of taking a variable number of co-signers. One of the co-signers initiates a transaction like a withdrawal and the other parties have to sign off on the transaction for it to be processed.

.

Due to blockchain�s decentralized nature, multisig wallet co-signers can be in different locations, countries, or even continents.