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What is a Multisignature Wallet?

Multisignature wallets require multiple private keys to approve transactions, making them ideal for secure fund management for high-net-worth individuals and businesses

A Multisignature (multisig) wallet is a type of advanced and very secure wallet that requires multiple private keys to authorize a transaction. Instead of relying on a single private key, multisig wallets use a combination of keys to enhance security.

Who Should Use It and Why?

  • High-Net-Worth Individuals: To protect large amounts of Bitcoin from theft or loss.
  • Businesses: To manage funds securely and require multiple approvals for transactions.
  • Shared Custody: For partners or groups to co-manage assets and prevent unauthorized access.

How to Secure It?

  • Distribute Keys: Keep all seed phrases and keys in separate, secure locations.
  • Use Hardware Wallets: Employ hardware wallets for added security.
  • Backup: Regularly back up all keys and wallet configuration files.

Considerations

  • Unlike ordinary wallets, in Multisignature wallets, Wallet Files, extended public keys (xpubs) or descriptors must be stored securely as well
  • Owners of Multisignature wallets must Plan ahead for wallet migration, or wallet recovery in case any key is lost

What Happens if a Key is Lost?

  • Threshold of Keys: If the wallet is set up with a threshold (e.g., 3 of 5 keys required), losing one key is not critical to access or move the coins in the wallet.
  • Recovery Plan: Use the remaining keys and wallet information like xpubs or discriptors (in case they are needed) to restore the wallet, and move funds to a completely new Multisignature wallet

Multisignature Schemes Breakdown

M-of-N

An M-of-N scheme in Multisignature wallets requires a minimum of M keys out of a total of N keys to sign a transaction. such setups provide flexibility for users, teams, corporations and businesses to customize the way they interact with their funds in a more secure manner

some common schemes are:

2-of-3 Multisig

  • Description: Requires two out of three keys to sign a transaction.
  • Use Case: Balances security and redundancy; widely used for personal cold storage and by services like Unchained Capital for vaults.

3-of-5 Multisig

  • Description: Requires three out of five keys to sign a transaction.
  • Use Case: Offers extra redundancy; suitable for more complex setups where higher security and flexibility are needed.