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<\/p>\n<\/figure>\nSingle-key wallets are good options for small and faster transactions \u2014 like face-to-face payments \u2014 but are not recommended for individuals and businesses who need to store considerable amounts of bitcoin. Like with cash, if you lose access to your single-key wallet, your funds are gone and there\u2019s nothing you can do to recover them.<\/p>\n
A multisig wallet, on the other hand, is configured in a way that requires a combination of keys from different sources to be operational \u2014 for example, 2-of-3, meaning that transactions can only be executed if at least 2 keys out of 3 are used. <\/p>\n
Different variations exist, with a combination of signatures required to access funds and execute transactions. Some solutions demand that all the private keys are used to create the signature and authorize a transaction for maximum security.<\/p>\n
Multisig solutions are not new to bitcoin. The concept was first pioneered and formalized into the standard Bitcoin protocol as early as 2012 but only started getting traction in 2014 after the shutdown of the Silk Road<\/a> and the collapse of the bitcoin exchange Mt.Gox<\/a>. The two adverse events urged developers to promote a better way to obtain maximum security against hacks and confiscation by authorities<\/a>. <\/p>\n There is an increasing practice among businesses to store their bitcoin as a reserve asset in multisig wallets, as solely relying on one person to preserve the private key could turn out to be a regrettable mistake for the security of the funds. By using a multisig wallet, users can prevent the problems caused by the loss or theft of a private key. So even if one of the keys is compromised, the funds are still safe.<\/p>\n Multiple signatures required<\/a> to authorize a transaction make it more difficult for someone to steal your bitcoin since they would need access to all of your private keys to get hold of your funds. <\/p>\n Imagine any individual or business entity creating a 2-of-3 multisig address and storing each private key in a different physical place and device, like a mobile phone, a laptop and a tablet. If one of the locations is accessed by malicious actors, the device located there is stolen, and even if the wallet is compromised, the attackers won\u2019t be able to spend the funds using only that one key they found.<\/p>\n In the same way, phishing and malware attacks are more easily prevented because the attackers can\u2019t do much with one single key at their disposal. <\/p>\n Besides malicious attacks of any nature, users can still access their bitcoin using their other 2 keys if they lose their private key. Multisig wallets are indeed a passport to more peace of mind with your funds.<\/p>\n The process to initiate a transaction with a multisig wallet follows the same steps regardless of the type of solution chosen. The user will input the transaction\u2019s details in the wallet and enter their private key to sign it. The transaction will be pending and only finalized \u2014 and the funds sent to the correct address \u2014 once all the required keys are submitted. <\/p>\n Example: <\/p>\n Step 1: Connect the hardware device to an existing wallet or create a new one;<\/p>\n Step 2: Wait for the wallet to recognize the hardware device and sign;<\/p>\n Connect a second hardware and proceed as above;<\/p>\n Connect the third wallet and sign as with the previous devices.<\/p>\n Step 3: To execute a transaction you will only need two of the 3 setup wallets above.<\/p>\n There\u2019s no hierarchy in the private keys, only the number required to sign the transaction in no particular order matters. There is no expiration date in multisig transactions, which will remain pending until all the required keys are provided.<\/p>\n Depending on the number of private keys and signatures required to authorize a transaction, different types of multisig wallets can serve the purpose, which are highlighted below.<\/p>\n Besides regular tips on how to protect your money \u2014 any money \u2014 online, you should use more precaution when it comes to bitcoin because malicious actors will exploit any vulnerability in your system to get hold of it. .<\/p>\n Firstly, multisig solutions prevent a single point of failure from occurring so that if you lose your private key, you won\u2019t lose your funds because you rely on a safe backup of separate private keys stored on different devices and locations for easy access.<\/p>\n Multisig wallets ensure you are more protected from cyber-attacks, making it much harder for malicious actors to break your security that relies on multiple safety points, making them nearly impossible to compromise.<\/p>\n When using a multisig wallet, you\u2019re basically using an arbitrator \u2014 a trustless escrow \u2014 to finalize transactions. Although this may sound like having an intermediary, in contrast with Bitcoin’s true ethos, there are a few differences to consider. <\/p>\n Firstly, this would be a voluntary choice that you make only by personally picking the escrow, which can be changed every time. <\/p>\n Secondly, the trust in the intermediary can be minimal as the chosen security entity cannot access your funds or get hold of them without your private key activation.<\/p>\n Multiple signatures act as the typical 2FA we use to access different services. Unless at least another signature authorizes the transaction, the funds cannot be accessed and spent. This solution is also recognized as a 2-of-2 multisig protocol, with the private keys kept on two different devices.<\/p>\n Multisig solutions are ideal for businesses because different individuals or groups can view balances, but to access and transfer the funds, they\u2019ll need at least two sources \u2014 two private keys \u2014 to authorize the transactions.<\/p>\n Although multisig wallets represent an improved solution to security issues, they could be better. They have risks and limitations, including a gray area in the parties’ legal responsibility in case something goes wrong. <\/p>\n Due to the reliance on multiple parties to authorize a transaction, one of the multisig wallets’ crucial drawbacks is low transaction speed. Such an issue is easily overcome if a user keeps the funds needed for quick transactions in faster solutions like single-key hot wallets and leaves most of the bitcoin holdings that must be better protected in multisig wallets. <\/p>\n Although there is plenty of educational material online to help you acquire the right skills for a smooth multisig experience, many people are intimidated by the technical knowledge required to configure a multisig solution. Bitcoin custodial companies that offer multisig wallets are usually very proactive in helping their customers set up their solutions quickly and effectively.<\/p>\n Recovery of funds in multisig wallets might be tedious and intimidating for non-techie bitcoiners, as it requires the import of each recovery phrase on each different device, which may represent a challenge to even the most technically skilled users. However, this shouldn\u2019t discourage people from using multisig as the prospect of losing their funds more easily from a single-key solution is more daunting. <\/p>\n While multisig is a great way to protect your bitcoin and provides a greater sense of security and peace of mind, it could be better. You should understand bitcoin<\/a> and wallets thoroughly before taking this next step of purchasing your own multisig. You may find our best multisig wallets<\/a> guide helpful in your research. <\/p>\n If you get past the inconvenience of setting up a multisig wallet and the technical learning required, multisig can help you achieve greater peace of mind with your bitcoin by adding an extra layer of security to your holdings. <\/p>\nWhy use a multisig wallet?<\/h2>\n
How does a multisig wallet work?<\/h2>\n
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<\/p>\n<\/figure>\nTypes of multi-signature wallets<\/h2>\n
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Advantages of Multisig Wallets<\/h2>\n
Increased Security<\/h3>\n
Escrow Transactions<\/h3>\n
Two-Factor Authentication (2FA)<\/h3>\n
Co-operation between two parties<\/h3>\n
Disadvantages of Multisig Wallets<\/h2>\n
Transaction Speed<\/h3>\n
Technical Knowledge<\/h3>\n
Fund Recovery and Custodial<\/h3>\n
Final Words<\/h2>\n