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Multisignature

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Understanding Multisig (Multi-Signature) in Cryptocurrencies

Multisig, which stands for multi-signature, is a cryptographic technique that allows multiple distinct signatures to be combined to sign documents or cryptocurrency transactions. This technology enables two or more users to collectively authorize a transaction, providing added security and control.

Historical Context

Although multisig is widely used in the cryptocurrency world today, the concept existed before the advent of Bitcoin. Its implementation in Bitcoin addresses dates back to 2012, and the first multisig wallet was created in 2013.

How Multisig Works

In essence, funds stored in a multisig address require multiple signatures to be accessed.

Enhanced Security: Multisig wallets provide an additional layer of security, mitigating the risks associated with single-key wallets, which are susceptible to phishing and various cyber-attacks.

Business Use: Multisig addresses are well-suited for businesses and organizations, ensuring that funds are not under the control of a single individual and requiring multiple approvals, thus reducing the risk of mismanagement or theft.

Example

An illustration of a multisig transaction is the buying and selling of bitcoins. In this type of bitcoin transaction, two signatures are needed: one from the sender (the individual spending their bitcoin) and another from a second private key. The additional signature ensures that the transaction can only be executed when both parties are content that the transaction terms have been satisfied.

For instance, if Party A is purchasing a product from Party B, Party C can hold the bitcoin payment in an arrangement similar to an escrow, releasing the payment after the product has been exchanged. In contrast, a traditional or single-signature on a bitcoin transaction involves only one keyholder who has full control over the funds.

Benefits of Multisig

Security: Reduces the risk of funds being stolen through phishing or hacking.

Control: Ensures that no single individual can unilaterally access or transfer funds.

Suitability for Organizations: Ideal for shared wallets in businesses, requiring multiple signatures to authorize transactions.

Multisig technology offers a robust security measure for managing digital assets, making it a valuable tool in the cryptocurrency ecosystem.

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