Multi-Signature (Multisig Wallet) - Cryptocurrency Security Solution for Teams

According to Glassnode, the number of Bitcoin addresses has surpassed 55 million by the end of 2025, reflecting the explosive growth of the cryptocurrency ecosystem. However, this growth also brings increasingly complex security challenges.

Why Is Cryptocurrency Security Becoming Urgent?

In the digital world, financial data is no longer stored in physical vaults but exists in encrypted form. Digital assets become targets for malicious actors. Additionally, a small mistake by users can lead to devastating losses.

For these reasons, multisignature (multisig wallet) was created as a strong defensive barrier against cyberattacks and human errors.

How Do Cryptocurrency Wallets Work?

Before understanding multisignature wallets, you need to grasp the basic concept of a cryptocurrency wallet.

A cryptocurrency wallet is a software application or hardware device that allows you to manage your digital assets — send, receive, store. They are classified based on several criteria: online or offline, decentralized or centralized, and most importantly — the number of private keys required to access.

What Is a Multisignature Wallet? Principles of Operation

Multisig wallets operate on the principle of “not putting all eggs in one basket” — a famous risk management adage.

Imagine a bank escrow box: to open it, you cannot use a single key. Instead, at least two or three people must insert their keys simultaneously into the lock, then turn them in a specified order to open. Or similar to a safe deposit box containing a third-party backup key and a custodian — both must use their private keys to access.

Key point: A multisig wallet requires two or more private keys to approve any transaction.

Comparison: Single-Key Wallet vs. Multisig Wallet

A single-key wallet is the most common approach today due to convenience. However, it is not suitable for managing large funds in organizations. A typical case: a company lost $137 million because the CEO — the sole holder of the private key — passed away without a recovery method.

How Does a Multisig Wallet Solve This Issue?

Instead of one person holding all authority, multisig distributes private keys among multiple “signers.” Each transaction is only completed when the required number of signatures is obtained:

• 2-of-2: Both sign
• 2-of-3: Two out of three approve
• 3-of-5: Three out of five confirm
• 4-of-5: Four out of five sign

Multisig Transaction Process

Step 1: A member initiates a transaction on the multisig address
Step 2: The transaction shows as “pending” to all members
Step 3: Remaining members add their digital signatures (using their private keys)
Step 4: When the threshold is met, the transaction automatically executes

Important note: No one is ranked higher, and keys do not need to be signed in a specific order.

Real-world example:

You create a 3-of-5 wallet with John, Alex, Alice, Sam, and yourself. To transfer funds:

• Either John + Alex + Alice sign
• Or you + Sam + Alex sign
• Or any three of the five

Main Features of Multisig Wallets

✓ All signers can view transaction details
✓ Each member receives a separate seed phrase (recovery phrase)
✓ Any transaction requires signatures from all designated signers
✓ Incomplete transactions remain in “pending” status forever

Why Should You Use a Multisig Wallet?

1. Unmatched Security

Instead of relying on a single key, multisig disperses risk. In a 2-of-3 wallet, even if a hacker gains one private key, they cannot do anything because two keys are needed to sign transactions.

Similarly, if you accidentally lose one key, the remaining two are enough to approve transactions. You can rest assured that your assets are not completely lost due to a mistake.

2. Automatic Two-Factor Authentication

Multisig wallets are akin to enabling 2FA (Two-Factor Authentication) for your bank account. Even if someone obtains one of your private keys, they still need the second key to withdraw funds.

3. Fund Management by Consensus

Organizations can use multisig as a “voting system.” Each transaction is only approved when a certain ratio (e.g., 60% of members) agree. This prevents unilateral decisions and ensures transparency.

4. Secure Escrow Payments

When conducting P2P (peer-to-peer) transactions with strangers, a 2-of-3 wallet can act as a “middleman”:

• Buyer deposits funds into the multisig wallet
• Seller provides goods/services
• If both are satisfied, both sign to transfer funds to the other
• In case of dispute, a third party (arbitrator) decides who receives the funds

Disadvantages You Should Know

1. Slower Transactions

Each additional signature increases processing time. If you need quick transactions, multisig is not ideal because you must wait for other signers to approve.

2. Technical Skill Requirement

Multisig is relatively new technology; not everyone understands or can use it effectively. You need a certain level of technical knowledge. However, with some effort, you can master it.

3. No Insurance or Legal Protection

The current cryptocurrency market remains outside regulatory boundaries. Funds in multisig wallets are not insured against breaches or losses. The risk entirely falls on the owner — even for hot wallets (hot wallet).

4. Sophisticated Scams

Some scammers exploit users’ limited understanding:

Case 1: Criminals pose as sellers, asking you to create a 2-of-2 wallet. But in reality, they only provide a “fake” key, i.e., a 1-of-2 wallet. You think both must sign, but actually only they hold the power — and can steal your funds anytime.

Case 2: You share private keys with friends or family, who then betray you to steal your money.

Prevention tips: Be cautious, choose trustworthy people, and verify carefully before setting up multisig.

Real-World Examples: Single-Key Wallet vs. Multisig

Scenario 1 — Tech Company:

• Using a single-key wallet: CEO holds the key. CEO passes away → funds are “locked” permanently (This actually happened, the company lost $137 million)
• Using a multisig wallet: CEO + CFO + Finance Manager manage jointly. CEO passes away → the remaining two can still operate the fund

Scenario 2 — P2P Transaction:

• Single-key wallet: You send money first, hoping the other person ships goods. High risk of scam
• Multisig wallet: Funds are held in escrow. Only when both agree, money is transferred. Much safer

When Should You Use Multisig?

✓ You are a large fund management organization
✓ You want to distribute authority among multiple people
✓ You require consensus approval for each transaction
✓ You fear losing private keys or they get stolen
✓ You want to secure escrow transactions

✗ Avoid if you are an individual user storing small amounts of cryptocurrency — in that case, single-key wallets (Trezor, MetaMask, etc.) are simpler

Popular Multisig Wallets

• BitGo: Digital asset management platform
• Electrum Multisig: Open-source software
• Casa Keymaster: Mobile app for multisig

Conclusion

Multisignature wallets are not for everyone, but they are a golden solution for organizations, funds, and collective management groups. They add an extra layer of security, like placing a table on multiple legs instead of just one.

This technology is relatively new but highly worth exploring if security is your top priority. Whether you choose hot wallets (hot wallet) or cold storage (cold storage), multisig is always an option to enhance your defenses.

But remember: No technology is perfect — your own caution is always the best layer of protection.