You’ve probably heard of private keys, public keys, wallets and the like. But did you know that you could make your transactions even more secure? Regular transactions can be considered “single-signature transactions,” because the only one signature is from the owner of the private key.
But there are much more complex transfers that require the signatures from multiple people before transferring the funds. They are called multi-signature addresses, also referred to as multi-sig.
Multisignature addresses are similar to joint bank accounts where more than one signature owner is required for the transactions to be authorized. This is very convenient when executing transactions where trust hasn’t yet been established or when creating community funds.
To be more precise, a multi-signature wallet requires “m-of-n” signatures before it will record a transaction on the network. Supposing the wallet has three parties and just one private key linked with the wallet, it would necessitate at least two-of-three individuals to validate said transaction using their private key.
These two parties can either represent two individuals, either people that are friends or between a person and the company offering a multisig wallet service. This leads to the different ways in which users can set up a multisig wallet, as they can use a third-party or make it themselves. This latter possibility is the most challenging option, yet it also guarantees that only the users have access to the private keys.
You can create a 2-of-3 multi-signature address without needing a third-party service provider. To do so, you would need three different wallet addresses and their public keys. If you run a complicated command in the Bitcoin Core client, you can generate a multi-signature wallet address by merging the addresses and their related public keys. The command will show a new multi-signature address, which can be used straight away.
Another way is to opt for the services of one of the many providers that offer multi-signature wallets. Companies such as Armory, Copay, Electrum, and Xapo all recognize the advantages of sharing a wallet with trustworthy parties to ensure the safety of one’s funds. Tech startups that activate in the cryptocurrency sphere often use a multi-signature wallet rather than letting one entity manage all the company funds.
Another thing different about multi-signature wallet addresses is that a multisig address will begin with a “3”, while a traditional bitcoin address will begin with a “1”. This may be confusing for some at first, but it’s just to indicate that the wallet is multi-sig.
As an example, the BitPay app will be used to demonstrate how you can set up your own multi-sig wallet:
- First, you download and install the wallet.
- Click “Get Started”.
- Click “Create bitcoin wallet”.
- 4. You’ll be asked to back up your wallet.
- Write down your 12 seed words or store them in a file.
- When done, click “I’ve written it down”.
- You’ll be required to rearrange words to form your seed.
- When you’re done, click “Confirm”.
- Agree to the “Terms and Conditions” and click “Confirm & Finish”.
Creating the Multi-Signature Wallet address
- Click the sign on the “Wallets” tab.
- Click “Create shared wallet”.
- Introduce the name and surname of the wallet.
- Select the number of signature holders (1) and the minimum number of signatures to approve a transaction (2).
- Share the code shown to add your co-signature holders.
This is how you create your very own multi-signature wallet should you ever want to add some extra security to your crypto transactions.
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