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What are the use cases of multisig wallets?

What is a multisig or shared wallet?

A multisig wallet (also known as multisignature wallet or shared wallet) is a cryptocurrency wallet that requires two or more signatures to confirm and send a transaction. It can be used by multiple keyholders or one user across multiple devices.

 

What are the use cases of multisig wallets?

  • Overall, multisig wallets offer an additional layer of security since transactions need to be signed by more than one copayer. This feature can be useful in a number of situations where one private key isn’t sufficient.


    Multisig wallet use cases:

    • Shared access to funds in a business/workflow scenario where multiple authorizations are needed to make a payment
    • Multi-user wallet (similar to a joint bank account)
    • Single user, multi-device security - similar to multi-factor authentication, improve security against thieves and hackers
    • Contingency for lost/damaged devices where keys are stored - if one recovery phrase is lost or destroyed, you may recover funds with another phrase
    • Additional protection against lost access to recovery phrases
    • Long term cold storage 

    IMPORTANT!  BACKUP YOUR RECOVERY PHRASES! Make sure to carefully plan your multi-signature system and backup/securely store your recovery phrases. Like all self-custody wallets, seed phrases can't be recovered. Coin Wallet does not have access to your seed phrases or private keys and can’t assist in restoring your funds if your recovery phrases are lost, stolen or destroyed.

Single-signature vs Multi-signature wallets

When you want to send funds from your wallet, a transaction is created and signed. By signing the transaction, you are digitally saying: “I am the owner of the funds, I have the key to manage them, and I approve this transaction.”

Single signature (also known as “basic”) cryptocurrency wallets need one signature to sign a transaction. Multisig is the shortened name for multisignature, and, as the name indicates, this kind of wallet requires one or more signatures to sign a transaction.

A multisig wallet is a digital wallet shared by two or more users called copayers. Depending on the kind of wallet, the number of signatures required to sign a transaction will be lower or equal to the number of copayers of the wallet.

For example, a 3-3 wallet is a multisig wallet that is shared by three people and requires three signatures to sign a transaction. A 2-3 wallet is a multisig wallet that is shared by three people and requires two signatures to sign a transaction. You may also see “2 of 3” to indicate the number of copayers needed.

 

What are the features of multisig wallets?

  • All the copayers can see the funds and transactions of the wallet.
  • Requires one or more copayers to sign a transaction to send funds from the wallet. This feature adds security to your funds.
  • A unique recovery phrase for each of the copayers who share the wallet. However, if one of the copayers’ recovery phrases is lost, there may no longer be enough copayers to sign transactions. Without enough copayers to sign transactions, you will not be able to spend the wallet’s funds.
  • Ability to store multiple cryptocurrencies under one multisig key.

How does a multisig wallet work?

To move funds, every wallet requires the user broadcasting the payment to sign the transaction. Multisig wallets also require one or more copayers to sign the transaction.

For example, with a 2-2 wallet Copayer A wants to send funds. When they try to move funds, the wallet creates a transaction proposal that is only signed by Copayer A. Sending the funds requires both Copayer A and Copayer B to sign the transaction. Until Copayer B approves the transaction, the funds stay in the wallet. When Copayer B approves the proposal, their wallet signs the transaction. Signing the transaction broadcasts it to the network and sends the funds.

The transaction proposal does not expire- there is no time limit to approve a transaction proposal. There is no copayer hierarchy. This means that any copayer can create a transaction proposal, and all the copayers can sign the transaction proposal.

A 2-3 wallet requires two copayers to sign a transaction (out of three copayers total). Copayer A creates the transaction proposal. Either of the remaining copayers (Copayer B or Copayer C) can approve the transaction proposal. A 2-3 wallet has three copayers but requires only two signatures.

The same remains true if a multisig wallet is used in a one-user, multi-device fashion. Whenever a transaction is initiated, it must be signed by copayers across multiple devices in order to be processed (ex: smart phone, desktop computer, hardware wallet).

 

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