Cryptocurrencies have brought a revolution in the way we manage our finances and their security. But with this freedom comes the responsibility to secure our funds properly. That’s where the concept of multisig or multiple signature comes in, an innovative solution that improves the security of your transactions and funds in the crypto space.
What is multisig?
Multisig is short for “multiple signature” and is a technology that allows a transaction to be approvedonly if authorized by multiple private keys. Essentially, a multisig wallet requires multiple signatures (private keys) to validate a crypto transaction, unlike traditional wallets, which operate on a single private key.
How do multisig wallets work?
Let’s take a simple example:
- You have a wallet configured with 3 private keys, but in order to approve a transaction, you need to have the signature of at least 2 of them (a typical 2/3 configuration).
- These keys can be shared between multiple stakeholders, such as different members of a team or even between your own devices for added security.
This method ensures that if a key is compromised or lost, your funds remain secure.
Benefits of using a multi-sig wallet
Adopting multisig technology comes with a number of notable advantages, especially for its users in the cryptocurrency world:
1. Improved security
Multi-sig wallets reduce the risk of losing funds, as a single compromised key is not enough to complete a transaction. Unlike a single wallet, hackers would have to compromise multiple keys simultaneously.
2. Shared control
In the context of a collective business or project, multisig allows signatures to be shared between several team members. Transactions require the approval of multiple parties involved, providing greater transparency and preventing unilateral decisions.
3. Protection against lost keys
Even if you lose one of your keys, the other keys can still be used to access your funds. This provides an extra layer of convenience for users.
4. Personalization
Multisig offers flexibility. You can create customized configurations according to your needs, such as 2/3, 3/5 or even 5/7. This allows you to find the perfect balance between affordability and safety.
How do you configure a multisig wallet?
Creating a multisig wallet may seem complicated at first, but the process is simple if you follow a few clear steps:
- Choose a multisig-compatible service
Platforms like Electrum or hardware wallets like Trezor offer support for multisig wallets.
- Set the required configuration
Decide how many private keys you want to use and how many of them are needed to authorize transactions (popular examples are 2/3 or 3/5).
- Distribute private keys
Once generated, make sure your private keys are kept in a safe place and within reach of people you trust.
- Test setup
Before transferring large amounts, carry out small test transactions to make sure everything is working correctly.
When should you use multisig?
1. For business or team projects
Multisig is ideal for organizations or projects where funds are managed collectively. It ensures that transactions are approved only after obtaining the consent of all parties involved.
2. For long-term investors
If you’re a HODLer (long-term investor in cryptocurrencies), multisig can provide an extra layer of security against theft or loss of private keys.
3. For personal protection
Even if you trade individually, using two or more separate private key devices significantly reduces the risk of losing your funds.
The limitations of multisig wallets
Although they have many advantages, it is important to be aware of some limitations:
- Complexity: Setup can seem intimidating for new users.
- Poor availability on some platforms: Not all wallets or exchanges offer multisig support.
- Difficult recovery: If you lose multiple keys and the setup requires all of those keys, funds could become inaccessible.
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