Crypto Academy Season 3 | Advanced course - Task 5: Multisig Wallet(Electrum)-- "m of n" Combinations
INTRODUCTION
Hi guys, welcome to steemit crypto academy season 3 week 5 . Today I'll be making a post based on the assignment task given by professor @sapwood on Multisig Wallet(Electrum), "m of n" Combinations.
(1) What is a Multi-sig wallet? How is it different from a Single key wallet? What are the different uses of a Multisig wallet?
(2) Download, install & set up a 2-of-3 BTC Multisig wallet(Electrum)? What is the difference between Seed key and MPK? Would you share the seed key or MPK with your co-signer and Why? (Screenshots Needed)
(3) How many different "m of n combinations" Multisig wallet you can construct in Electrum? How do you Export your Seed & Private Key(Electrum) in a Multi-sig wallet? (Screenshots needed)
(4) Perform a real transaction(Send BTC) to another Address using a 2 of 3 Multisig wallet? (You can perform a micro-transaction for this Task, also send a partial amount to demonstrate your experience with Change Address, screenshots needed).
(5) What is the difference between Receiving Address & Change Address? Demonstrate your experience with a Change Address?
QUESTION 1:
MULTI-SIG WALLET AND ITS USES
Before we delve into what a multi-sig wallet is, we should understand what a wallet is. A crypto currency wallet is an app that allows traders that allows crypto owners to store and keep their digital assets. A wallet also allows the owner to send and receive tokens using keys and addresses.
A multi sig wallet which in full means a multi signature wallet is a variant from the usual single key wallet in which a user requires just a single key to validate transactions. A multi signature wallet as the name implies often requires multiple keys to validate transactions instead of just one. This means that a multi signature wallet is a type of wallet that requires two or more keys/signatures .
When opening a Multi-sig wallet, you'll be required to choose the number of cosigners and the number of authorizations for each transaction.
Most people often choose the multi sig wallet is different from the single key wallet in some certain areas which include;
The most obvious difference is the fact that the single key wallet requires just one key to validate transactions while the Multisig wallet requires 2 or more.
Unlike the single key wallet, the Multisig wallet provides a more secured level as it requires not just 1 but 2 or more authenticators to complete a transaction making it harder for fraudsters and the likes.
A Multi-sig wallet can be used in organisations where more than one approval is needed to perform a transaction.
USES OF A MULTISIG WALLET
The Multisig wallet has several uses which include;
INCREASED SECURITY;
The additional authentication required by a Multi-sig wallet is a unique feature and this increased feature makes it hard for theft and malicious transactions.
ESCROW TRANSACTIONS
An escrow is a mediator between two parties in a transaction. Since more than one key is required in a multi sig transaction,an escrow would hold a key to finalize the transaction.
COMPANY ACCOUNT VALIDATIONS
In a large company that might often require voting before making transactions, a Multi-sig wallet could prove useful as not just anyone can validate transactions as a lot of people would have to validate it first.
QUESTION 2:
HOW TO SET UP A MULTISIG WALLET
It is really easy to open a Multisig wallet (e.g. electrum) but you'll be needing other co signers. In this section,I'll be showing how to open an electrum wallet on your mobile device. It can be done in a few easy steps;
First you'll have to download the app from the site or off Google play store.
screenshot from Google play storeThen you'll launch the app and create a Multisig wallet.
Then you'll be required to choose the number of cosigners and the required number of signatures required to complete the transaction.
After choosing the m and n( m= number of signatures required, n= number of cosigners) combination of your choice, click on next and then create a new seed. For this task I'll be using 3 cosigners and 2 requirements for validation of transactions.
You'll be given a collection of words. Write them down and keep them safe and private.
On the next page , you'll be required to input the seed you were given previously.
After imputing the seeds ,on the next page ,you'll be given a master public key. Copy it and save it somewhere as you'll be required to share it with other cosigners.
On the next page, you'll be required to add the second cosigners key.
- After inputting the 2nd cosigners key, you'll also have to input the 3rd cosigners key.
- Then you'll be required to create a password for your wallet. After creating a password, then your wallet has been successfully created.
* * *
What is the difference between Seed key and MPK? Would you share the seed key or MPK with your co-signer and Why?
The seed key is a private key just like your private keys in steemit. The seed key should be kept private and away from the public view. The seed key can be used to generate master public key. The master public key on the other hand is public and you'll need to share it with the other cosigners.
If the seed key is compromised ,the wallet can be lost to fraudulent individuals and therefore should be kept private , the master public key on the other hand can be sent to other cosigners.
I wouldn't share my seed key with my cosigner as it is my private key and should be treated as such. On the other hand , I can share my MPK with my other cosigners as it is a public key and it is required to link the multi sig wallets.
QUESTION 3:
In the electrum mobile application, there can be a maximum of 5 cosigners and 5 signatures and a minimum of 2 cosigners and 1 signature. The number of cosigners would often determine the number of required signatures. For example, if you choose to have 4 cosigners, the maximum amount of required signatures you can pick would be 4.
HOW TO EXPORT YOUR SEED AND PRIVATE KEY IN MULTISIG WALLET
Exporting your seed is really easy and can be done with the following steps;
Open the electrum app , and on the home page you'll see default wallet on the top left corner.
Click on it and you'll see export backup in the bottom right corner. Then you can now export your seed and private keys.
QUESTION 4:
TRANSACTION USING 2 OF 3 MULTISIG WALLET
In this section, I'll be performing a simple transaction of sending BTC with my 2 of 3 Multisig wallet. (@vhenom ,@mykhell007 are my cosigners).
- First, I transferred an amount of BTC to my Multisig wallet. Then proceed to send ( top left).
At the send page, you'll input the recipient address, the amount and the transaction description.
The fee rate depends on the speed you choose for the transaction. As you can see form the image below, I adjusted it to the fastest.
After confirming the transaction, you'll see a page showing the transaction ID. At the top you'll notice it only has one confirmation.
You can now click the qr code at the bottom for a second to confirm the transaction so it can be completed.
- After the transaction has been confirmed by 2 cosigners, it would be completed and it would show in your wallet history.
QUESTION 5:
The receiving address is the address that can complete a transaction without Unspent transaction output . On the other hand ,the change address is the address that often have unspent transaction outputs.
As the name implies , the receiving wallet is an inter wallet address as it is the address used to receive Bitcoin from other wallets . The change address on the other hand is the address of the wallet created by electrum to accommodate tokens not used in a transaction.
CONCLUSION
The Multisig wallet is a very useful variance to the normal single key wallet as it's additional uses often prove beneficial.
It often consists of more than one cosigner and most often require more than one key authorization to validate transactions.
Thank you for the lecture professor @sapwood. It was my first time hearing about multi signature wakets and I'm really happy I got to know about it.
All unsourced images are screenshots from the electrum mobile app