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What is Multi-Sig?

Would you have to live under a rock not to have heard at least something about Mt Gox? How about Bitfinex? Both hacked, and folks who had crypto stored with them lost big time. Losing assets is never good at all; can it be avoided?

In considering how to protect your assets best, have you given much thought to a Multi-Sig security system? Let’s think about this, and maybe the application would be something of interest to you? I love the idea!

The first thing to clear up (for those who are scratching their heads) what is Multi-Sig? Well, simply put, Multi-Sig stands for Multi-Signature, but it certainly doesn’t end there.

Multi-Sig accounts are set up with two or more persons holding keys and can be predefined so that all persons or the majority of persons with keys are required to “open” the account door and send or withdraw any of the assets therein.

Multi-Sig beefs up the security in Bitcoin wallets, increases use cases for Corporations, makes escrow and arbitration trustless among other things. Just think of the problems it could solve!

What if the only key were somehow lost? Unfortunately, this happens, then the assets are lost forever. Naturally, this would be devastating for anyone.

Since Multi-Sig accounts can be set up so that no one person has ultimate control over the assets. Therefore, the loss of just one of the keys would still mean all would not be lost. Say you set the Multi-Sig to require three out of five keys activate the “lock?” This predefined condition would mean the funds were still accessible. What a relief!

Imagine you and two partners want to open a business. The capital account can be set up to require that at least two of the keys are necessary to “open” the account lock. What does this action do?

  • Ensures that one key cannot access the funds for any reason.
  • On the other hand, as long as two of the critical key holders agree, they can access the funds to pay the light bill, for example.
  • If one of the keys are lost, this will not result in disaster.

Blockchain networks have added native support for multi-Sig accounts to increase security as compared to a single-key account most people use.

Keeping multiple private account keys in different physical locations, entirely offline, on an air-gapped machine, or in cold storage helps bring a tremendous amount of peace of mind. An air-gapped computer is physically isolated from the internet, as well as other systems with internet access. Cold Storage, according to Bitcoin Wiki: Cold storage in the context of Bitcoin refers to storing Bitcoins offline and spending without the private keys controlling them ever being online. This action resists theft by hackers and malware. Using a combination of a Multi-Sig account with offline or cold key storage dramatically increases the security of assets which is of particular interest in storing more significant amounts of Bitcoin.

Multi-Sig accounts can be set up according to needs and wishes. Perhaps thinking of the following ideas can spark the imagination:

  • Possible scenario #1:
    • Shared accounts: A couple wants to share an account, but have separate wallets. One of two keys is required to “open” the lock.
  • Possible scenario #2:
    • Two-factor authorization – you keep one key safely stored and from the two-step security, another factor holds a “key” on your phone.
  • Possible scenario #3:
    • Safer Paper Wallets? You keep a key with the paper wallet in storage; a trusted friend or family member holds a key, and a third key stored in another safe location.
  • Possible scenario #4:
    • Bitcoin Escrow or arbitrator service: A service which holds funds until the terms are met in a sale or purchase to the satisfaction of both parties. (the downside, of course, is you are sending funds to someone to hold that may or may not be trustworthy)
  • Possible scenario #5:
    • Corporate BOD: A company board of directors decides it wants to maintain control over company funds. They can set up the Multi-Sig account so that four of the seven board members are required to use their key to “open” the lock and delegate funds to Executives for dispersal.

These are certainly not all possibilities, but enough to encourage thought on creating and increasing security to your assets. Is it wise to rely on just one key to unlock what separates you from your assets?

A Couple Wallets offering Multi-Sig accounts:

(As always, do your due diligence!)

  • Electrum:
    • Electrum is a Bitcoin-only wallet. It is not particularly user friendly, and, if you are new to Bitcoin, you may prefer to use a different wallet.
    • Electrum is “open-sourced”.
    • You can learn how to create an Electrum Wallet here:
    • Search Youtube for Electrum
  • Armory:
    • Armory too is a Bitcoin-only Wallet. It first maximizes security for the user and then makes it easy to understand and use.
    • Armory’s Multi-Sig function is called “Lock-box” and this is how to use it:
    • Search Youtube for Armory Wallet

A company, business, group or even an individual could benefit from more security. The question is, then, how could increased security benefit you?

Keep in mind – Always have backups to your keys! Requiring all keys 2 of 2 / 3 of 3 / 4 of 4 / etc. puts you right back where you started since if you lose just one key, you have lost access to your money! If you have 2 of 3 or 3 of 4, you can still recover your money if you lose one key. (This is undoubtedly an improvement in a simple Bitcoin Wallet.)

You cannot make a wallet with an infinite amount of keys, there are some technical limitations.

*Photo credit goes to Purestake

About the author

Gail holds one of the most challenging role in the Compumatrix Leadership: Membership. She ensures that that members and potential members enjoy the benefits of being part of the Compumatrix community.

Comments

  1. I enjoyed reading your blog. This is a great means of security as well as possible recovery.

    Now it’s time for my gripe session. When it comes to these exchange hacks, I have difficulty believing this is the truth! How many times does someone have to be told to keep their funds off the exchanges? How many times does someone have to be told, “not your keys, not your coin!” If these exchanges experience a run, they will yell HACK! This, in my opinion, is because they are not holding the coins in their accounts that they say they are holding for their customers! That’s my story and I’m sticking to it!

  2. I don’t believe we should leave funds on an exchange either?? This is why I made that first paragraph, to point our WHY it is not safe to store funds on an exchanger. They are in charge of our funds leaving us out of the security and since hackers know the prize will be large should they be successful in hacking, they are more incentivized. I’m not sure what you mean isn’t truth??

  3. a very interesting blog posting and read — I am not sure if I have been under a rock but I do know i have not kept up with the Crypto world and all the nuances of this world — I have learned over couple months that Security should Always be Our number 1 asset to keep our Assets Ours?? but there is a ton of info that needs to be deciphered and utilized properly — I also am quite definite that this blog will be read many more times before I am done — thank you for a great read —

  4. I think Multi-Sig is like you said in the article, more secure with less of a risk of losing all of your money if you were to lose a key. I think by having multiple keys to activate a lock makes it harder for a hacker to hack the funds within the account. I also think it is a less risky solution in the case that a key could potentially be lost. If only some keys were lost, one could still access the funds in the account. Before Multi-Sig, all of the funds would have been lost if the activation code or key were lost. Thank you for sharing! Learn something new every day!

  5. Hello from Janis peeking out from under her rock 🙂 Well just another thing I didn’t know about, but now I do. Thank you Gail, I am happy to learn about this option as security was something I am very concerned about, and this method of sharing out the keys gives options if one’s only key was misplaced. Any more information you may wish to blog on this issue is very welcome.

  6. Thanks for this article. I have been aware of Multi-Sig but I was unaware of the different protocols that you should use like 3/4, 2/3. Early on in Compumatrix paper wallets have come up, there were discussions on cold wallets and ways to protect your assets. To know that there are different wallets tu use is rewarding. The different scenarios was helpful in showing how Multi-Sig can be used in different situations. Thanks for this information.

  7. I did not think of sharing your keys for security it would definitely have to be a trustworthy partner in doing this but like you said make sure all is backed up and you should be fine. I think this would be excellent protection especially if you were dealing with large amounts.
    This opens the imagination of what you can do with security excellent read.

  8. Wow, Gail, more to learn. Seriously thou we do need to be ever learning and be on top of the best digital currency safety. I know I have several copies of my key for my wallet. There is always that fear of losing them, having a Multi-sig seems like a good idea in this respect. My thought is, how convenient will it be for two or more people to be available at the same time to enter the key at the time you need to get to your funds? Multi-sig would be a relief. Needless to say, I need to research and learn how it works.

  9. Gail thanks for this information. The security of Bitcoin has to be our #1 priority and yet it just seems quite confusing. This topic will definitely be on my to do list over the summer. The multi-sig makes a lot of sense in business scenarios. In fact I think many businesses including the government would benefit from utilizing the multi-sig to prevent some fraud and abuse of powers.

  10. A Crypto wallet is like a bank account in which I must hold my keys. This article opens my learning experience.
    Now taking a step in security having more keys or more than one signatures to access in a safe place and need them and protect from fraud, theft, or misuse, this form of multi-sig comes a safe way to go.

  11. I believe multi signature is a brilliant concept creating many possibilities especially with completing a financial transaction with multiple people at different corners of the globe! The power of owning your own private keys and the power of performing your own banking without paying a middle man is what this is all about! Scalability in multi sig is ongoing. I find it interesting learning about Taproot and other time lock systems requiring certain conditions be met first providing a stronger safety feature. This subject matter grows like a rooting system of a tree; it is exponential!

  12. Learning and learning is what im doing most now, im still putting things in the perspective of this new era of crypto and security, thank you Gail, have really enjoyed reading.

  13. I leased a ranch in the mountains many years ago. One day I had a knock at the door. There was a lady and her friend standing there when I opened the door. The lady said she lived there when she was a kid. Apparently, her family buried a jar full of money in the yard and she wanted permission to dig around to see if she could find it.

    What happened to secure our savings over the years? This lady didn’t have keys and still lost her money. Now, we are talking about holding electronic keys or nobody can access your money, even you.

  14. Love the blog Thank you. I learned about security at banks early on. I have multiple verbal passwords on my accounts. Better safe than sorry. We have so many forms of security today its hard to find one you like. But here at Compumatrix we receive such great information and have so many ways to find answers we can’t get too off track.

  15. in the understanding of more is better — security is one of those things that especially in todays online world we as business entrepreneurs can not literally get enough of — i sure would like a simple and fool proof formula but every day changes happening that make that almost impossible — but am trying best to keep secure —

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