The term “Multisig" stands for "multi-signature." That is - a special kind of digital signature, which makes it possible for two or more users to sign documents as a single group. Created through a combination of several unique digital signatures.
In the context of cryptocurrencies, “Multisig” wallets were first talked about in 2012, and a year later they created a relatively effective working model. Which solved many security problems, but had some specific features.
What is it?
The simplest analogy is a bank cell with two keys that are owned by different people. And in order to access for what's inside, they must agree, get together and use their keys at the same time.
Multisig technology implies the same thing - several different access codes that only together provide access to the information they encrypted. This adds a new level of security to digital payment tools, especially compared to standard Bitcoin-wallets working on a single digital signature.
Multi-signature and standard key
Most standard cryptocurrency vault opens with a single key. That means anyone who has this information gets full control over finances. In a situation with one person - this is still permissible, but if a group of people owns the funds - problems may arise. At the very least, it is a simple abuse of funds by those who receive the key alone. If several people get one access code, then the chance that it will soon be discredited seriously increases.
Multi-signature wallets solve this problem. And - in a rather interesting way. So, for example, you can create a “Multisig" cell, which opens only when two of the three keys are used. Or three out of three, three out of four, or any other option that you decide to use. This allows you to bypass both the security problem and the difficulties with using a single wallet by a group of people.
Two-factor authentication and enhanced security. Different keys do not have to be with different people. This can be used as a single mechanism of two-factor authentication. Let's say there are three keys. The first will be stored on the phone, the second - on the laptop, and the third - generally recorded on a piece of paper and lies somewhere in the safe. To access the wallet, you will need to enter 2 of all three possible. Therefore, the loss of any device or the theft of information from it will give the attackers only 1 of the keys necessary for access. The other two will still remain with you, so you can log in and eliminate the compromised access code. That is why it is better to use 2 of 3, and not 2 of 2 or 3 of 3. Because the loss of one code should not block the possibility of access to the wallet.
Escrow transactions possibility. That means transactions in which an intermediary-observer-controller is involved. He acts as a guarantor that everything will pass within the framework of the established agreement. A wallet is created with three signatures and 3 of 3 activations. The first participant receives the first signature, the second - the second. The third is given to the observer. If the first participant deposits money into the account, and the second fulfils the planned obligations, the third party provides its key to activate the account and make the transfer. Since payment has already been made but blocked, the party providing goods or services may not be afraid that it will be deceived.
Effective decision making. Multisig wallets can come in hand for large companies to ensure more efficient distribution of funds. If, for example, there are 6 people on the board of directors, then set the mode to 4 out of 6, you can achieve that only the majority will manage the funds and no one will have the opportunity to individually withdraw money to their account.
The main problem - setting up such a wallet requires either certain technical knowledge or the intervention of an intermediary. That is, you will either have to study the material yourself or find a person who deserves trust so that he sets up this mode of use. Another difficulty is the legislative settlement. The fact is that it is difficult to say in legal terms to whom the funds on “Multisig” wallets specifically belongs. However, cryptocurrencies have always had significant problems with official settlement.
This technology, despite some of its shortcomings, has huge opportunities. Using safer cryptocurrency storage methods is definitely useful. Therefore, this technology will continue to develop, adapting to other blockchains.
CryptocurrencyAuthor: EXBASE.IO | Dec 01, 2020
NewsAuthor: EXBASE.IO | Sep 03, 2021