As cryptocurrencies evolve the need for advanced security measures to protect valuable assets is important, security is a huge concern for anyone, not just crypto holders.
A solution to protect your crypto comes in the shape of a multi-signature wallet. A powerful tool to enhance security for your assets.
Unlike traditional wallets that only require a single private key for access, a multi-signature wallet requires two or more people to confirm a signature, adding a further layer of security.
What are Multi-Signature Wallets?
A multi-signature wallet is a type of cryptocurrency wallet that requires multiple private keys to authorise a transaction.
Traditional wallets require a single private key for access, while multi-signature wallets require more than one private key to sign and authorise transactions.
Security is a big concern within cryptocurrency, having a single vulnerable point that can compromise an entire wallet is dangerous, putting your cryptocurrencies at risk.
Multi-signature wallets employ a process of cryptographic signing, each private key holder must sign the transaction to validate it.
The number of required signatures can vary, allowing for further customization based on individual security needs.
One example is a 2-of-3 multi-signature wallet, that requires two out of the three authorised parties to sign off on a transaction.
An ‘M-of-N’ configuration represents the most common form of multi-signature wallet.
In this configuration, M signifies the number of signatures, and N signifies the total number of possible signatures.
Different combinations can be chosen, such as 2-of-2, 2-of-3 or 3-of-5 and more based on security preferences.
Pros and Cons of a Multi-Signature Wallet
Multi-signature wallets offer enhanced security, even if one private key is compromised or lost, the wallet remains secure as it requires the cooperation of multiple signatures to authorise.
Multi-signature wallets reduce the risk of having a single point of failure, with multiple signatures requiring a transaction to complete. There is less risk for all of them to be compromised simultaneously.
Multi-signature wallets create better trust, removing the need to rely on a single individual or device.
Setting up with multiple users and managing a multi-signature wallet can be complex, especially for newcomers to crypto.
Losing access to even one private key can lead to complications when completing transactions.
The process of recovery for Multi-signature wallets requires importing each of the recovery phrases on a different device which takes time.
Examples of Multi-Signature Wallets and How to Set One Up
The type of wallet you use for multi-signature functionality is a personal choice, below are two examples of wallets that have multi-signature security layers.
Electrum is a Bitcoin wallet that supports multi-signature functions, it is available on both desktop and mobile applications.
Bitpay is a crypto wallet that has support for multi-signature functions.
You can find a list of different multi-signature wallets here.
How to Set Up a Multi-Signature Wallet
We will give a simplified version of how to set up a multi-signature wallet.
When creating a new wallet, during the process you’ll have an option to choose the number of co-signers and the required number of signatures to complete transactions.
The wallet will generate a set of public keys, each one for each co-signer, these keys are used to create the multi-signature address.
Once all the co-signers have their public keys, the wallet will generate a multi-signature address, where you can receive funds, sending funds from the address will require each co-signers signature.
An in-depth guide to setting up a multi-signature wallet with Electrum can be found here.
Multi-signature wallets offer an advanced layer of security to protect your crypto.
It is advised that if you set up a multi-signature wallet, you trust the other co-signers to act in the best interest of the wallet.
Multi-signature wallets offer greater protection from potential hackers or malicious software, despite the complicated process of setting one up, it is a good way to keep your wallet secure.
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This article is intended for educational purposes and is not financial advice.