What Is a Multi-Signature Wallet
A multisignature wallet — commonly known as a multisig — is a type of cryptocurrency wallet that requires a predefined number of signatures or approvals before a transaction executes (e.g., two of three or three of five keys). You can think of a multisig like a vault requiring multiple keys to open.
Traditional cryptocurrency wallets only use one private key to access and manage funds and a single signature for transactions. Because multisig wallets require multiple private keys to access funds, the wallet is more secure from hacking and theft. Organizations and businesses that manage large amounts of cryptocurrency commonly use multisig wallets, and Decentralized Autonomous Organizations (DAOs) also use multisigs to manage their treasuries.
Multisig wallets distribute control. With multiple signatures to transact, funds are still secure even if one of the multisig signers is compromised. Multisig wallets benefit organizations that require multiple stakeholders to sign off on transactions — increasing transparency, oversight, and accountability. They also benefit individuals that own large amounts of cryptocurrency and want increased security.
Multisig wallets are more complex to set up and use than single-signature wallets.
They are also less flexible than single-signature wallets and require coordination between multiple key signatories to execute transactions.
In conclusion, multisig wallets are critical tools for cryptocurrency users to increase security over their funds. They also provide transparency and oversight for organizations that hold large amounts of cryptocurrency. However, multisigs have drawbacks, as they have complexities that single-signature wallets do not have.