There is no question that digital assets have brought excitement to the masses with a broad range of technical, commerce & financial applications as well as a degree of financial power and democracy. But with great power comes great responsibility. And when it comes to storing your digital assets (e.g. cryptocurrency, NFT), you want to make sure it’s secure.
A multi-sig wallet, also known as a multi-signature wallet, is a type of non-custodial (self-custody) digital wallet that requires more than one signature, or approval before a transaction can be made. Think of it as having multiple keys to a safe, where two or more keys are needed to access the contents inside. In the case of a multi-sig wallet, the keys are digital and the contents are your cryptocurrency.
Here’s a quick scenario that can help you understand multi-sig a bit better: Let’s say you and a few other business friends decide to quit their 9-5 and start a business together. Although you trust them, you’ve only known them for a few months and want to make sure no one is trying to do anything sneaky. So, instead of having a bank account that everyone can access with one password, you use a new kind of storage system. Each time someone wants to access funds, everyone is alerted through an app, and everyone has to confirm each transaction by pressing ‘yes’ on their phone. Everyone has a unique phone, so there would be little to no chance someone in the group can access funds without other co-signers knowing, let alone a hacker.
Why is this important? Well, let’s face it, we’ve all heard horror stories of individuals losing their life savings to hackers, or developers losing funds with someone on the inside taking money for themselves. With a traditional cryptocurrency wallet, however, you have one key, or private address, that is used to access your funds. If a hacker gets a hold of this key, they can drain your entire wallet without a second thought. A multi-sig wallet provides an extra layer of security by requiring multiple signatures, or approvals before a transaction (e.g. withdrawing assets from your wallet) can take place.
So, how does it work? Let’s say you have a 2-of-3 multi-sig wallet. This means that two out of three registered keys, or signatures, are required to approve a transaction. These keys can be held by individuals, or even by multiple devices. For example, one key could be on your mobile device, another could be on your laptop, and a third could be with a trusted friend or family member. This makes it exponentially more difficult for a hacker to access your funds and protects against the loss or theft of any one device.
In summary, a multi-sig wallet provides a higher level of security for your digital asset transactions. By requiring multiple signatures, or approvals, before a transaction can take place, you’re protecting yourself against loss or theft. With increased control over your funds, you can feel confident that your digital assets are secure. So, whether you’re a developer, a DAO member, a fund manager, a treasury manager, a business owner, an investor, or just someone looking to secure your life savings, a multi-sig wallet is not just nice to have but a necessity.