A type of digital wallet that requires signatures from multiple private keys to authorize transactions.
A Multi Signature (Multisig) wallet is a type of digital wallet that requires signatures from multiple private keys to authorize transactions. This setup enhances security and provides a method for shared control over funds. Multisig functionality is implemented directly into Bitcoin and Bitcoin Cash's scripting language, making it a native security feature rather than a third-party solution.
"A company might use a multisig wallet for their treasury, requiring signatures from the CEO, CFO, and COO to authorize large transactions. This prevents any single person from having complete control over company funds."
Multisig wallets are a safe way to hold shared funds as multiple private keys - usually controlled by separate entities - must be combined to authorize transactions. This setup can protect against theft, loss, or misuse of funds. For high-value cryptocurrency holdings, multisig provides crucial protection against single points of failure. Bitcoin Cash's implementation of multisig maintains compatibility with Bitcoin's, ensuring widespread support across wallet providers.
"If one person loses their private key in a 2-of-3 multisig wallet setup, the funds can still be accessed using the other two keys. This redundancy makes multisig wallets particularly valuable for long-term storage or business applications where fund security is paramount."
Different types of multisig wallets can be generated to require all the keys, or a specific number (like 2 out of 3, or 3 out of 5) of the keys to authorize transactions. This provides flexibility in managing access to the funds. Various configurations like 1-of-2 (either key works), 2-of-2 (both keys required), or more complex arrangements can be implemented to balance security with operational needs.
"In a 2-of-3 multisig wallet, any two of the three private keys can authorize a transaction. This setup can provide a balance of security and convenience. For instance, a family might set up a wallet where either parent plus a trusted relative can access funds in case of emergency."
Multisig wallets are useful in various scenarios, such as shared control over funds in a company, enhanced personal security measures, or even in creating a more secure environment for a cryptocurrency exchange's cold storage. Bitcoin Cash's larger block size enables more complex multisig transactions to be processed without significant fee increases, making multisig more practical for everyday use cases beyond just large value storage.
"Cryptocurrency exchanges often use multisig wallets for their cold storage to enhance security. Even if one key is compromised, the funds remain secure. This approach is particularly valuable in networks like Bitcoin Cash where transaction fees remain low even for complex multisig operations, allowing exchanges to move funds efficiently when needed."
All terms and definitions may update as the Cryptionary improves.