Multi-Signature ("Multi-Sig")

Written by Aidan Mott

Introduction

Multi-Sig short for Multi-signature wallets are Bitcoin or cryptocurrency wallets that require multiple private key signatures to process or authorize a transaction from that address.

Multi-sig wallets have between 2 to 5 unique private keys controlling each wallet. In order to send a transaction from a multi-sig wallet “M-of-N” number of private keys need to sign the transaction.For example, 2 of 3 controlling private keys need to sign or 3 of 5.

Implementation of multi-sig wallets in Bitcoin known as pay-to-script-hash (p2sh) addresses have existed since 2012. Multi-sig wallets are useful in situations that involve the need to add another layer of security over the control of funds that has multiple parties involved such as business wallet addresses. Another primary use of Multi-sig wallets is in the use of escrow transactions. An example with using multi-sig in an escrow transaction, imagine party A selling an item to party B and party C acting as an escrow. Party B would send funds to a multi-sig wallet that all three parties have unique private keys for but the money can only be moved if 2 of the 3 parties sign the transaction. This means that party A would then send the item to party B at which point party C, the escrow, would confirm that the item has arrived and sign a transaction with party A moving the funds.

Suggested Reading

Bitcoin as programmable money: Multisig transactions by Matt B

What Is a Multisig Wallet? by Binance Academy

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