What is Multisignature in Crypto?
Multisignature requires two or more signatures for a single wallet address to execute transactions. The funds on a multisig address can only be accessed when all signatories approve. The technology has been around for a while, but was popularized by Bitcoin and cryptocurrencies in 2012.
Think of a multisig address like a vault with two locks and two keys. The first key is held by one person and the second is held by another person, and neither of them can open the vault without the other. The vault can only be opened by both individuals at the same time. This offers an extra layer of security and removes the risks associated with single key addresses, which can be more prone to security risks like phishing.
How Does a Multisig Transaction Work?
In a multisig transaction, two private keys are used in tandem to initiate and complete a transaction. Both parties have to sign a transaction at the same time before the network approves it. This distribution of responsibilities increases the security of the multisig address.
Users can choose how many keys are required to access the wallet or address. For example, a 2-of-3 multisig requires two out of three private keys to unlock a multisig address. Bitcoin’s Lightning network requires a 2-of-2 multisig to close a payment channel.
Corporations and businesses favor the multisig transaction system for increased security. It allows businesses to store their assets on a cold wallet, and different members of the team are assigned the private keys. This reduces the risk of one employee unilaterally accessing the assets.