In the field of cryptography, where security is paramount, multi-signatures (multisig) have emerged as an inevitable feature. Multi-signatures are commonly used in crypto wallets, where a transaction requires multiple signatures with different cryptographic private keys.
Multi-signatures are especially beneficial for individuals and businesses using cryptocurrencies. However, it is not completely free of complexity and risk.
This article details the advantages and disadvantages of multi-signature wallets. You will also understand the difference between single signature wallets and multi-signature wallets.
How multi-signature wallets work
Crypto wallets, whether single-signature or multi-signature wallets, require a signature to verify transactions. Single-signature wallets require only the signature of the transaction initiator. However, multi-signature wallets require the signatures of multiple users to obtain consent in the form of a signature.
The wallet generates multi-signature addresses, and a certain number of addresses in the multi-signature group must use their public keys to sign transactions. The specific programming used aggregates these signatures into one and authorizes the transaction.
Types of multi-signature wallets
Multi-signature wallets are categorized into several types based on the number of signers.
- 2-of-2: This wallet requires two private keys and two signers to approve transactions. Can be used in joint accounts that require the consent of both account holders to conduct transactions.
- 2-of-3: This type of wallet has three private keys, but only two signers. These wallets are used for business purposes.
- 3-of-5: This wallet uses 5 private keys, but only 3 of the 5 require signatures. It is used by corporate finance and large corporations for high-level security purposes.
There are also other multisig combinations such as 5-of-10 and 3-of-7.
Difference between single signature wallet and multi-signature wallet
The table below shows the main differences between single-signature wallets and multi-signature wallets.
| single signature wallet | multi-signature wallet |
|---|---|
| Only one signature is required. | Multiple signatures required. |
| These are simple and help you make quick trades. | It is complex and time-consuming because it requires consent from multiple signers. |
| It may be less secure or at risk. | It is highly secure as transactions cannot be made without the approval of all signers. |
| Accountability has its limits. | Accountability is high because multiple signatories must agree for a transaction to take place. |
| Privacy is more important as users can keep their private keys safe. | Individual privacy can be compromised because multiple signers are involved. |
| They are more vulnerable to fraud and theft. | The chances of fraud or theft are low. More resistant to phishing threats. |
Advantages of multi-signature wallets
Multi-signature wallets are highly advantageous for users who prioritize security and responsibility. The main benefits of multi-signature wallets to keep in mind are:
- No single point of failure: Multi-signature wallets require authorization of multiple private keys, so there is no single point of failure. This means that a hacker cannot tamper with a single key to commit fraud.
- Ideal for collaboration: Multi-signature wallets are ideal for collaboration in businesses with multiple stakeholders, large corporations, joint ventures, etc.
- Accountability and Transparency: Because multiple private keys are involved, each signer is highly accountable. All signatories are aware of the transactions involved, making the entire process transparent.
- Security: Multi-signature wallets are more secure. They have the resources necessary to identify and mitigate security threats.
- Less chance of human error: Multiple signers check and verify the process before initiating a transaction, reducing the chance of human error.
Disadvantages of multi-signature wallets
Although multi-signature wallets are very beneficial in several ways, they also have some drawbacks.
- Complexity: Executing transactions on multi-signature wallets is very complex due to the large number of parties involved. Managing large numbers of keys is technically complex.
- Slow transactions: different from single signature wallettransactions in multi-signature wallets are slow because they require approval from multiple stakeholders.
- Higher fees: Multi-signature wallets require more resources to store information about multiple private keys, resulting in higher transaction fees.
- Compatibility issues: Multi-signature wallets are not compatible with all blockchains or wallet providers. This affects interoperability.
- Legal uncertainty: The legal and regulatory framework regarding multi-signature wallets is not fully developed in all regions of the world. This can cause uncertainty in operation.
conclusion
Multi-signature wallets are useful for digital currency transactions that require a high degree of security and caution. These wallets are used by joint account holders, large corporations, and corporations that require approval from multiple stakeholders to conduct transactions. Although there are many advantages, you should also be aware of the disadvantages.
Before using a multi-signature wallet, please do your own research to understand its specific usefulness in your case so that you can avoid any of its drawbacks.
Frequently asked questions (FAQ)
For multi-signature wallets, recovering funds can be a pain as you have to import multiple recovery phrases for different private keys. If you lose some of these keys, it is impossible to recover your funds.
Although multi-signature wallets are highly secure, they can be hacked if the keys are not stored and managed properly. There could be an insider threat where a majority of signatories could collude to steal funds.
Gnosis Safe, Casa, CoPay, and Armory are some of the best multi-signature wallets of 2025.
