Just like a lock and key, imagine having two separate objects that must come together to give you access to your crypto.
The whole point of two objects that must come together to function adds an extra layer of security.
This is just how a multisignature wallet, more commonly called a multisig wallet, works.
This article will lay out the basics of what a multisig wallet is, how it works, and compare some popular options available on the market.
Whether you are looking to boost your security or have a business with multiple owners, using a multisig wallet is a great way to safeguard your Bitcoin.
What is a Multisig Wallet?
A multisignature wallet is a type of crypto wallet that has more than one private key associated with it.
Usually, a crypto wallet has one private key attached to it.
This key is what grants access to your digital assets as it signs transactions on the blockchain.
Now, a multisig wallet has multiple private keys.
This is done to make it more difficult for hackers or thieves to gain access to your crypto cold wallet.
Multiple Private Keys Required: Instead of relying on a single private key, a multisig wallet needs multiple keys to sign off on a transaction.
Enhanced Security: By separating the keys, you pick who controls the assets. It reduces the risk associated with a single point of failure. If one key gets lost, your Bitcoin remains safe because nothing can be done without the other keys.
What’s The Difference Between Single-Signature and Multisig Wallets?
Choosing between a single signature and a multisig wallet comes down to multiple factors.
If you have a large amount of crypto or are sharing access (like in a business setting), then using a multisig wallet is the best option.
On the other hand, a beginner crypto investor will be fine with any one of the best hardware wallets for protection.
Here is a further breakdown of single-signature and multisig wallets.
Single Signature Wallets
These are your “standard” hardware wallets that require one private key to authorize your crypto transactions.
They are more convenient since you only need one device or object to complete the transaction, however, if you were to lose your crypto wallet, you could stand to lose your assets forever.
Having a cold wallet backup is necessary if you are going to use a single-signature wallet so that you can recover your crypto quickly before a hacker or thief takes everything.
Multisig Wallets
These wallets need multiple private keys to authorize a crypto transaction.
The combination can vary between the number of keys needed (between 2-5 are the most common).
They provide a higher touch of security because it makes it much harder for an unauthorized user to access the wallet.
Setting up a multisig wallet might be more complex than a single-signature wallet, but, it depends on the device itself.
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Pros and Cons of Each Wallet Type
Single-Signature Wallets:
- Pros: Easy to set up and use; ideal for beginners and daily transactions.
- Cons: Poses a higher security risk if the single key is lost or stolen.
Multisignature Wallets:
- Pros: Provides extra layers of security; great for larger amounts or shared accounts.
- Cons: More complex to manage; transactions may take longer because of multiple approvals.
How Does a Multisig Wallet Work?
As a multisignature wallet has more than one private key, the multiple keys need to work together to sign off on a transaction.
The common configuration of a multisig wallet is the 2-of-3.
What Does “2-of-3” Mean?
From the three total private keys created, two are needed to approve a transaction.
This can be true for other models that require more than 3 keys. It is done so that not all keys are needed, but rather the majority.
It is a great setup for businesses with multiple partners, where any two holders can authorize transactions without the third.
Step-by-Step Simulation of Authorizing a Multisig Transaction
- Initiation:
- One of the key holders starts a transaction. Let’s say Alice wants to send some Bitcoin from the multisig wallet.
- Notification:
- The other key holders—Bob and Charlie—receive a notification that a transaction has been initiated and requires their approval.
- Approval:
- The required number of key holders review the transaction details.
- If everything looks good, they use their private keys to sign off. In a 2-of-3 setup, any two approvals are enough.
- Completion:
- Once the necessary approvals are collected, the transaction is executed.
- The transaction is then recorded on the blockchain, making it official and transparent.
Top Multisig Wallets
Selecting the right wallet is crucial for protecting your crypto. Whether you want advanced security features, ease of use, or innovative ways to manage keys for yourself or multiple users, there’s a wallet out there to fit your needs.
Here’s a breakdown of our top picks for the best multisig wallets.
Material Shadow Wallet
Built to last a lifetime as a true cold wallet, Material Shadow is the best option for users looking for top security features and ease of use with multisig support.
What Makes It Stand Out?
- Indecipherable design: The wallet comes in two independent pieces, boosting security by requiring both parts to operate.
- This two-piece system means that no one part holds all the information, making it much harder for unauthorized users to access your crypto.
- Includes Material Bitcoin Portable, a metallic black card that will fit into your normal wallet, so you can carry it anywhere you go. This card only has your public address engraved on it so that you can receive payments and check your balance.
Security Features
- Being a cold wallet means it has no internet connection, keeping it safe from online hackers.
- It has no electronic components, making it hackproof.
- It’s air-gapped, protecting it from online attacks.
- Made from AISI 304L steel. This means it is fireproof (up to 1,652°F), waterproof, and shock resistant.
- The Material Shadow Wallet comes with a lifetime warranty.
Perfect for Beginners
- Easy to use.
- The setup is straightforward.
Why Choose Material Shadow Wallet?
Enhanced Security:
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- The two-piece design and lack of electronic devices make it extremely secure.
- Your private keys are never exposed online, keeping your assets safe from hackers.
Convenience:
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- The included Material Bitcoin Portable card lets you easily receive payments and monitor your balance on the go.
Durability:
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- Built to hold up against extreme conditions.
Electrum Wallet
Created in 2011, the Electrum Wallet is an online hot wallet that offers multiple features, including multisign access. You can connect to a separate hardware wallet for added protection.
Special Features
- Multisig support creates multiple signature wallets to authorize a transaction.
- Self-custodial hot wallet. Electrum stores your private keys on your device, not on a third-party server.
- Easy for beginners, best for advanced users. There are many tutorials to help you use Electrum, but the advanced features are best for tech-savvy investors to take advantage of.
Customizable Security Options
- Apart from being multisig, Electrum supports two-factor authentication and can be used with hardware wallets.
- Electrum also provides a seed phrase (a series of 12 recovery words) when you set up your wallet. If your computer crashes or you lose access, you can use this seed phrase to recover your funds on another device.
Why Choose Electrum Wallet?
Platform Versatility:
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- Available on multiple platforms including Windows, macOS, Linux, and Android.
Security Features:
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- Supports two-factor authentication (2FA) for added security.
- Compatible with hardware wallets for cold storage options.
Open-Source and Transparent:
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- Source code is publicly available for review and auditing.
- Regular updates from a community of experienced developers.
Cypherock Wallet
This wallet uses a unique twist on private key storage. The Cypherock Wallet eliminates the need for seed phrases by distributing your private keys on multiple hardware devices (cards).
How It Works
- Private key “sharding”. Splits your private keys into 5 different shards.
- One shard stays on the X1 Wallet electronic device, and the other four are stored on individual X1 Cards.
- No single device or card contains the complete private key.
- To approve a transaction, you need any 2 out of the 5 shards.
Security Features
- Distributed security of 5 units.
- Hardware encryption.
- Each card is secured with a PIN code.
- Uses open-source firmware.
Why Choose Cypherock X1 Wallet?
Multisig Safety over 5 devices:
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- Perfect for family or business use.
Flexible Configuration:
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- You decide how many shards are required to authorize transactions.
Hardware Protection
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- Provides offline storage and security.
Advantages and Disadvantages of Using a Multisig Wallet
Multisig wallets boost your wallet’s security and protection by eliminating a “single point failure”.
Since you need multiple private keys to authorize a transaction, the risk of a cyber attack is less.
On the flip side, you need to think about the possible complexity of setting up a multisig wallet.
Think about coordination with other key holders, and their responsibility to safely store their device (be it a card, electronic component, or entry PIN).
Pro Tip: Create clear best practices and communicate protocols with the other key holders to avoid issues.
Simple, user-friendly options, like Material Shadow paired with the Material DIY metal crypto wallet for recovery, are an easier option.
You still get all the benefits of multisig protection but without the complication of too many holders and electronic setup and configuration of apps.
| Pros | Cons |
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Final Thoughts on Using a Multisig Wallet
Using multiple signatures to authorize a transaction makes it much harder for unauthorized access to your crypto.
Whether you’re managing your investments, sharing access with family, or a business, multisig wallets are the safest place to hold crypto.
They might seem a bit complex, but options like the Material Shadow simplify the process.
Make sure to stay informed about changing crypto rules, regulations, and security features while maintaining clear communication with your other key holders.
FAQs
Is Coinbase Wallet a Multisig Wallet?
- Coinbase used to offer a multisig wallet called the Coinbase Vault. However, it is no longer supported.
How Do I Get a Multisig Wallet?
- Obtaining a multisig wallet is easy. Pick a reliable provider, like Material Shadow. Follow the setup steps, secure your seed phrase, and divide the multisig wallet’s components. Create clear rules with other holders to reduce issues and delays.
What is the Best Multisig Wallet Available?
- The best multisig wallet depends on your individual needs. Make sure to consider how many people will need to have access to the crypto wallet, and what each holder’s tech level is.
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