Multisig wallets: how distributed security changes the attitude towards digital assets

The technology of multisignature (multisig) is a system where the signatures from two or more participants are required to execute a transaction. Instead of trusting access to funds to a single key, users distribute control among several participants, each of whom has a separate private key. Although the principle of distributed signatures has existed in cryptography for a long time, in the context of cryptocurrencies, this idea was first implemented for Bitcoin in 2012, and the first wallets with multisignature appeared a year later.

Where multisignature is used in the crypto world

The multisignature technology has found wide application in various scenarios, but the overwhelming majority of cases are related to the need to enhance asset protection.

Business and collective management

Corporate structures often face the problem of managing pooled funds. The board of directors or company partners can set up a wallet using a 4 of 6 scheme, where each committee member receives a separate key. In this case, no individual will have the ability to spend funds without the consent of the majority. This safeguards against the whims of a single person and ensures transparency in financial decisions.

Agreements with conditions

When two parties (, for example, Maria and Ivan ) want to conduct a commercial transaction but do not trust each other, a third - neutral arbiter ( Peter ) can be invited. The multisignature address (2 with 3) allows funds to be locked so that no participant can withdraw them alone. If the deal goes smoothly, both parties sign the transaction with their keys. If a conflict arises, the arbiter intervenes and provides their signature to the party that fairly deserves the funds according to their judgment.

How is it technically arranged

The simplest analogy is a safe with two locks and two keys. One key is with Maria, the other with Ivan. Neither of them can open the safe separately – the action of both is needed simultaneously.

In the context of blockchain: access to funds at a multisig address is only possible with the provision of multiple signatures generated using different private keys. The most common configuration is 2 of 3, where 2 signatures out of 3 possible are required to access the assets. However, other schemes can also be configured: 2 of 2 (absolute majority), 3 of 4, 3 of 5 – the options are numerous depending on the needs.

Standard Address vs Multisignature: What's the Difference

A regular Bitcoin address uses a single-key system. Whoever possesses the private key can freely manage the funds without anyone's permissions. This is certainly faster and easier, but carries serious risks.

When control relies on a single key, there is a single point of vulnerability – if that key is compromised, the funds are irretrievably lost. Cybercriminals are constantly refining phishing techniques and spreading malware specifically to gain access to these single keys. For businesses, this approach is particularly problematic: if a company's funds are stored at an address with a single key, that key must be trusted either to one person or distributed among several, which is also risky.

Multisig solves both problems. Even if one key is compromised, the funds remain protected, as multiple keys are needed to transfer them.

Strengthening Protection

The user can distribute three private keys among three different devices: a laptop, a mobile phone, and a tablet, setting up the address in a 2 out of 3 scheme. If one device is stolen, the attacker will only gain access to one key – which is not enough. The likelihood of successful phishing is also reduced, as the hacker will usually only have access to one device. Moreover, if one key is lost forever, the owner can still access their assets using the other two keys.

Two-Factor Authentication via multisignature

A verification system can be organized using two keys. One key is stored on the computer, the other on the mobile phone or even printed on paper. To execute a transaction, access to both sources is needed simultaneously. However, when using a 2 of 2 scheme, there is a critical risk: if one key is lost, access to the funds is impossible. A safer option is to set up a 2 of 3 or apply a third-party 2FA service with backup codes. For trading accounts on cryptocurrency exchanges, it is often recommended to use Google Authenticator as an additional layer of protection.

Limitations and Risks

Setting up a multisignature address requires certain technical skills, especially if one does not rely on third-party providers. Furthermore, blockchain addresses and multisignature technology are still relatively young, so the legal framework for resolving disputes remains vague. When funds are stored in a shared wallet with multiple keyholders, there is no clear legal custodian, which can complicate legal proceedings.

Conclusion

Despite technical difficulties and legal uncertainties, wallets with multisignature open new opportunities for the use of cryptocurrencies, especially in a business context. Requiring multiple signatures for asset transfer, they provide a significantly higher level of security and allow for transactions with escrow without the need for mutual trust between parties. This technology will evidently have increasing demand in the future as security and management of digital assets become critically important.