What is a multisig wallet?
Multisig stands for multi-signature. It is a type of digital signature that allows two or more users to sign documents as a group.
The technology got first introduced to Bitcoin addresses in 2012 but was in existence way before that. Mostly multisig addresses get used in cases related to security concerns, but they are also beneficial in other contexts.
How does a multisig wallet work?
Think of a secure deposit box with two locks and two keys, and imagine one key to be held by Dave and the other by Jane. With the multisig technology, the deposit box can only get opened when both the keys are present.
In other words, there is no way to open the box without the consent of both people.
It means that the funds in a multisig address can only become accessible by using two or more signatures. Hence, this technology creates an additional security layer.
Before moving deeper into this technology, let us understand the basics of a standard Bitcoin address dependent on a single key instead of multiple ones.
Single-key VS multisig
Generally, Bitcoin gets stored in a standard, single-key address, and the funds are accessible by the person who holds the corresponding private key.
That means only one key is required to sign transactions, and anybody holding the private key can transfer the coins without the authorisation of anyone else.
Even though managing a single-key address is faster and easier than a multisig one, it raises many security issues.
A single key means that the funds remain protected by a single point of failure and that allows cybercriminals to develop new phishing techniques to steal crypto users’ funds.
Also, a single-key address is not the most feasible option for a business involved with cryptocurrencies.
Imagine the risks involved with funds of big companies getting stored on a standard address with a single corresponding private key. It would mean that the private key remains entrusted to a single person or multiple people, which is not a safe option.
Multisig wallets provide a solution to these problems. Unlike the process involved in a single-key, the funds stored on multisig addresses can move only if multiple signatures are present.
It requires a different combination of keys to configure a multisig address. The most common one is 2-of-3, where only two signatures are enough to access the funds of a 3 signature address.
But many other variations exist, such as 2-of-2, 3-of-3, 3-of-4, etc.
How does the multisig technology apply to mesha?
Mesha allows you to create team wallets and buy NFTs with your friends.
How to create these team wallets on the mesha app?
Follow these steps –
Open the mesha web app and click on ‘create a team’ in the far left corner
Enter your team name and team description. If you want to keep your team private, you can enable that option. It essentially means that you approve every member that wants to join. And this can be done by any of the owner of the team.
Once the team gets created, copy and share the link with your friends. You get 1000XP if you share a link and someone successfully opens a mesha account using it. If they join a team, you get an additional 1000XP.
Once you finish doing that, connect your Metamask wallet. But you do not need to do that necessarily if you have a created a new wallet during onboarding (ie. created a pin). You can then use that new wallet to pay the gas fees for safe deployment. Usually a minimum of 0.01 ETH is enough to cover the gas fees for deploying a multisig wallet.
Benefits of multisig wallets
Even though there are several possible applications for this technology, some of the most common ones are:
Security
Multisig wallets help users prevent problems caused by the loss or theft of a private key. So the funds stay safe even if one private key gets compromised.
For example, Dave creates a 2-of-3 multisig address and stores each private key in a different place or device like a mobile phone, laptop or tab.
Now, if his mobile device gets stolen, the thief still won’t be able to access the funds using 1 of the 3 keys.
That is how multisig wallets make phishing attacks and malware infections less likely to succeed, as hackers mostly find access to only one device and key.
And even if Dave loses one of his private keys, he can still access the funds by using his other 2 keys.
Two-factor authentication
Jane can use the technology to create a two-factor authentication mechanism by creating a multisig wallet which requires two keys.
However, using this technology as two-factor authentication can often be risky, especially if set as a 2-of-2 multisig address.
And you won’t be able to access the funds if even one of the keys gets lost. A 2-of-3 set-up or a third-party 2FA with backup codes is usually safer.
Decision-making
A multisig wallet can also gey used by a board of directors to control access to a company’s funds.
For example, by setting up a 4-of-6 wallet where each board member holds one key, none of the individual board members can misuse the funds. It ensures that only decisions agreed upon by the majority get executed.
Disadvantages
Even though multisig wallets are a good solution for various problems, they have certain limitations. For one, you need some amount of technical knowledge.
And that becomes even more crucial if you want to set up a multisig address without relying on third-party providers.
And because blockchain and multisig addresses are both relatively new, it can often become difficult to seek legal help when something goes wrong.
Takeaway
The benefits of multisig wallets outweigh their limitations. Besides offering several applications like making Bitcoin and other cryptos more appealing to businesses, it also provides more security by requiring more than one signature to facilitate any transaction. Overall, the technology is likely to see increased usage in the future.
