Understaning Multisig Wallet
Hello everyone, hope you all are doing good? This is the beginning of an exciting three part series, which promises to be informative and also educative, do well to follow all the parts, as you will definitely gain 1 or 2 useful information from the series. In today's article we would be knowing what is a Multi-sig wallet, how is it different from a Single key wallet and what are the different uses of a Multisig wallet?
A multi-sig wallet is a type of wallet that requires more than one signature for a transaction to be broadcasted to the network. For instance, you have a bank account, and before you can make any transaction, you require the authorization of some other person or people, who you gave the authority, these people can be called cosigners. Let's further imagine, that you trust two people and made them your cosigners. Before you can be able to perform any transaction from your bank, you must require one or both(depending on your setting) of them to authorize such transaction before such transaction can be processed. That's exactly what Multi-sig is about.
Multi-sig wallet is a crypto wallet that requires not only you, the owner of the wallet to sign a transaction before it can be broadcasted to the network. It requires cosigners to sign the transaction, then and only then it can be processed and broadcasted to the network.
Now, how many cosigners do I need? This is the question that gave rise to combination "m" and "n" in Multi-sig wallets. "m" stands for, number of signatures needed for a transaction to be broadcasted to the network. While "n" stands for the number of cosigners to a wallet.
For most Multi-sig wallets and for the wallet we would be looking at later in the article, which is Electrum, the maximum "n" is usually 15. Hence, there could be a combination of 15 of 15 wallet, which means that, before any transaction from such wallet can be broadcasted, all the cosigners to that wallet has to sign it. So, if we have a combination of 9 of 15 wallet, that means, if 9 cosigners should sign the transaction, the transaction would be broadcasted. So, the owners of the wallets can choose whichever combination that suits them best. They can go for a combination of 2 of 2, 4 of 10, 3 of 7, 5 of 10, or the most commonly used combination, 2 of 3. NOTE: cosigners doesn't have to be a person, it can be a device. Let's take for instance, I can use a 2 of 2 wallet combination. I can use my desktop as the owner of the wallet and my phone as the cosigner to the wallet. So, before a transaction can be processed and broadcasted to the network, I will have to sign the transaction on both devices.
I hope you now fully comprehend what Multi-sig wallet is.
Differences Between Multi-sig Wallets and Single Key Wallets
Multi-sig wallets are very much different from single key wallet, in some categories, such as;
- Signatures Needed
- Security
- Suitability
- Speed
- Signatures Needed: Single key wallet requires just only one signature for a transaction to be processed and broadcasted to the network, while Multi-sig requires multiple signatures for a transaction to processed and broadcasted to the network.
- Security: Both type of wallets are highly secured, but Multi-sig wallets are more secured than Single key wallets, as it is harder to be hacked when using Multi-sig wallets as compared to Single key wallets.
- Suitability: Single key wallets are quite more suitable for individuals while Multi-sig wallets are more suitable for organizations, as no single person should be able to have complete access to the organization's fund. Before any transaction should take place, some number of people must sign(in other words, approve) it, hence, this is literally the best checks and balances for organizations.
- Speed: The Single key wallet is very much faster in completing transactions than Multi-sig wallets that require multiple people to sign a transaction before it can be broadcasted to the network, which may take minutes, hours and sometimes, even days.
Use Cases Of Multi-sig Wallets
There are many good use cases of Multi-sig wallets, which brought about the invention of it, in the first place. Below are my 3 major use cases of Multi-sig wallets;
- Check And Balance
- Added Security
- Joint Account
- Check And Balance: This is the best solution for accountability in organizations. It will completely reduce or even erase the chances of an employee embezzling an organizations' funds, because it is literally impossible, as many people will have to sign the transaction for the transaction to be processed and broadcasted to the network.
- Added Security: Let's imagine, your phone gets stolen and your private keys and seed phrase are in your Gmail in your phone which is now compromised. Your funds are gone for good. But with Multi-sig wallets, your funds are intact, there are not going anywhere, because before the hacker/thief can send your funds out of your wallet, my cosigners will have to sign such transactions.
- Joint Account: Multi-sig wallet can very much act as a better joint account than our conventional joint bank accounts, which can be compromised by any of the partners involved, as they can make transactions without the approval or signature of the other partner. But with Multi-sig wallet, before any transaction is made, it is known and approved by both partners. Note: partners is this context are Husband and Wife.
I hope you all found the article interesting and exciting. Do well to share your thoughts about the article in the comment section below. Thanks.
It may sound cumbersome and annoying, but the more you analyze it, the more logical and useful it becomes. As you say, for an ordinary person, a multi sig wallet may not be very practical, but for companies and organizations it is.
On the other hand, your analogies to explain the points were excellent. That made me understand things better.
Thanks for this information.
the more options a wallet asks for to make a money transfer, the more secure it will be. this type of checks are necessary.