Do you want to keep your cryptocurrencies as safe as possible? If you do a quick search on the internet, you will soon come across the term ‘ multisignature ‘ or ‘ MultiSig ‘. These are two techniques that ensure that you can store your crypto more securely.

Multisignature wallets work in a completely different way than normal wallets do. Making a mistake while setting up a MultiSig wallet could cause you to lose access to your cryptocurrencies.

Before you want to use this, it is therefore important to know what MultiSig is and how it works . I’ll explain everything about it below, so you can get started right away.

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• Cryptography, private and public keys, digital signatures… What about it again?
  • public and private keys
  • digital signature
  • Wallet address
• What does MultiSig mean?
• Different types of multisignature wallets
  • 2-of-2 MultiSig wallet
  • 2-of-3 MultiSig wallet
    • Do you travel a lot?
  • 1-of-2 MultiSig wallet
• Which MultiSig wallets can you use?
• The pros and cons of multisig
  • Cons
• Conclusion

Cryptography, private and public keys, digital signatures… What about it again?

Let’s start with the basics. Cryptography is used within blockchains, which is why we call currencies on the blockchain ‘cryptocurrencies’. This shows how important cryptography is for blockchain technology, and therefore also for cryptocurrencies.

If you want to make a transaction over the network of a blockchain, you do not need to have an account for this. So nobody knows who you are. Wouldn’t it be easy to pretend to be someone else? No, because everyone has their own private and public key. These two keys are used for signing a transaction, known as a digital signature .

public and private keys

The private key is not known to anyone but you . The public key, on the other hand, is known to the nodes in the blockchain network. It is best to share the public key with others, although you should always keep the private key to yourself.

Both the public and private key consist of a number of characters (both letters and numbers). At first glance, these appear to be randomly generated. In a sense, the private key is, too. This key is unique , and you are the only one who has this key. The public key originated from the private key as a hash . This ensures that these two keys can easily be linked together. It is not possible to retrieve the private key by performing this hashing process in the reverse direction.

Do you want to know everything about public and private keys, encryption and cryptography? In the video below, made by AllesOverCrypto, Matt tells you everything you need to know about this.

 

digital signature

The moment you want to make a transaction, you must sign the transaction. This can be done using the public and private key. When these two keys belong together, a unique digital signature is created . Someone can only create this signature when he/she is in possession of the correct key combination. Because the private key is strictly personal, a digital signature can only be created by the rightful owner (unless the private key has been stolen).

Wallet address

You send cryptocurrencies from a crypto wallet . Such a wallet has a special wallet address . The wallet address is a hash of the public key, so that the wallet address is directly linked to the person to whom it belongs. When you make a transaction from the wallet, the nodes in the blockchain network check whether the digital signature is correct. This way they know for sure that someone is entitled to send certain crypto coins.

You also use the public key to receive a transaction. When sending cryptocurrency, you indicate to which wallet address the coins should be sent. Only the rightful owner of this wallet address can receive the transaction with his public and private key. Without these keys, the transaction remains ‘locked’.

Do you want to know more about cryptography and encryption? The video below gives you more information about these techniques.

 

What does MultiSig mean?

MultiSig (Multi Signature) means that more than one signatures are required to access the cryptocurrencies contained in a wallet . Multiple signatures are required for both gaining access to crypto and sending it.

Normally, in a single-signature wallet, there is only one private key . This can be ideal if you want to access the wallet on your own. Or when you do not store absurdly high amounts in the wallet. You then get access to the wallet and can send cryptocurrency when you show your private key once. There is therefore only one digital signature to make with the private key that you possess.

There are several private keys in a MultiSig wallet . These private keys are required to create a digital signature. Let’s say you have a wallet with 3 private keys. Only the combination of these three keys could create the digital signature. With only one or two keys you cannot create a digital signature and therefore you do not have access to the funds in the wallet.

Different types of multisignature wallets

You could apply the technique of multisignatures in different ways. There are therefore different types of MultiSig wallets . Each type has its advantages and disadvantages, and can therefore be used perfectly in a certain situation, while other types are not suitable for this situation.

2-of-2 MultiSig wallet

You could best compare this with two-factor authentication (2FA) . Here you have to enter a password and code (which will be sent to your email address, phone number or application). You will only be able to access your account if both your password and code are correct: 2 out of 2 must be correct .

We are talking about 2-of-2 MultiSig wallets here . In this case there are 2 private keys, and in order to make a transaction or gain access, you will need to be in possession of both private keys. You could store the private keys on two different devices.

The advantage of 2-of-2 MultiSig is that it is more secure than single signature. The downside is that you lose access to your crypto if you lose one of the private keys.

2-of-3 MultiSig wallet

In a 2-of-3 MultiSig wallet, there are three different private keys . However, when you want to access or make a transaction, you only need 2 of the 3 private keys . Exchanges often use this type of multisignature. They store one private key online, one offline and one private key with an external security company. Should one of the private keys be hacked, the wallet is still not vulnerable.

Do you travel a lot?

If you travel a lot and have a hardware wallet with you, you could use a 2-of-3 MultiSig wallet. You store one private key on the hardware wallet, one private key on another device (such as your laptop) and one private key with an external company, such as Unchained .

If you lose your hardware wallet while traveling, you can still access your crypto wallet. You then contact Unchained, who will then establish your identity through a careful process. So you can assume that they will never give the private key to anyone except yourself.

1-of-2 MultiSig wallet

Then there are also 1-of-2 MultiSig wallets . This type of multisignature is especially suitable for people who share a wallet together. Suppose you have crypto on a wallet with a (business) partner, and both need access to the wallet.

It is safer if both have their own private key. To access the crypto (or send funds) you only need one of the generated private keys.

Of course it is also possible to create several private keys, which is useful when you are with several people. You could then create 1-of-3 , 1-of-4 but also 1-of-5 MultiSig wallets. Please note , because the more private keys there are, the more likely that a private key will be stolen. Because you only need one private key to access the wallet with this type of wallet, it is easy for hackers to siphon off funds after they have come into possession of a private key.

 

Which MultiSig wallets can you use?

Do you want to keep your cryptocurrency safe? Now that you know how MultiSig works, you may have decided for yourself to use this technique. That may be wise. However, keep in mind that despite using MultiSig, you can still lose crypto. The security of your crypto starts with you.

According to a large number of security experts, it is important never to click on a link that you do not know where it goes. Also, never just download files from the internet, and never store your seed phrase online. If you have multiple private keys, they say it is better not to keep them on the same device.

• Armory – This is arguably the oldest MultiSig wallet, as it has been around since 2011. Within Armory you can manage the private keys, so you don’t necessarily have to keep them in a separate place.
• BitGo – If you want to store Bitcoin on a MultiSig wallet, you could use BitGo. This wallet only focuses on storing Bitcoin.
• Coinbase – You can use a so-called ‘Hosted Wallet’ at Coinbase, where the private keys are stored within Coinbase’s database.
• Electrum – It is possible to store private keys on a cold wallet when using the Electrum wallet.

The pros and cons of multisig

MultiSig has a large number of advantages, as you have already seen from the text. Below I would like to sum up the advantages for you. Despite the many advantages, MultiSig also has a number of disadvantages, which I would like to tell you about.

Advantages

• Cryptocurrency is more securely kept . Because you need multiple signatures, your crypto is a lot safer in a multi-signature wallet than in a single-signature wallet. This is especially important if you want to store a large amount of money in crypto.
• You are not dependent on one device . Do you have all your crypto on a single-signature hardware wallet, and do you lose the wallet? If someone knows the code of the wallet (and you are not on time with the recovery), you will lose your crypto. You do not have this problem with a multisignature wallet.
• Handy for people who travel a lot . When you travel a lot, you will often have to move your hardware wallet. It is then extra safe to use MultiSig, because you ensure that if you lose the wallet, no one else but you will have access to your crypto.
• Can serve as escrow . A third party could have one of the signatures, so that MultiSig can be used to perform an escrow.

Cons

• Recovery is difficult . Have you lost access to the wallet? Restoring a MultiSig wallet is difficult because you are dealing with multiple seed phrases. So you spend more time and effort on this.
• Setting up is not easy . Setting up a MultiSig wallet is more difficult than setting up a normal wallet. You have to deal with multiple signatures and seed phrases. In addition, you also need quite a bit of technical knowledge.

 

Conclusion

MultiSig makes it possible to generate multiple private keys for a crypto wallet. When you have a wallet with multiple private keys, it is possible to better secure your crypto. However, it depends on which type of MultiSig you use for your wallet, as well as which application you use. Above you have been able to read which types of MultiSig there are and which providers you could use.

Are you looking for more information or do you have any questions about multisig? Or would you like to meet other crypto enthusiasts? In the free Discord channels of our product Money Mastery from AllesOverCrypto you can ask questions and talk to thousands of other crypto enthusiasts. Do you have other crypto related questions? The easiest way is to look up your question in our FAQ. What you can also do is that you google your question + AllesOverCrypto. Please let us know what your thoughts are on multisig and whether you are already using it!

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