by Bit Plorer
Storing bitcoins safely has been a constantly changing landscape with new and innovative ideas springing up every now and then. Of all the available options, multisignature bitcoin wallets definitely stand out from the rest. Why? Because they offer great security coupled with ease of use.
In simple terms, a multi signature address is a bitcoin address which is linked to more than one private key. Standard wallets, on the other hand, have a single private key.
There is a fixed number of private keys generated when the wallet is created, say “n” number of keys. The number of keys required to sign a transaction before it is executed and broadcast to the network is up to you.
How does multisig help to secure my funds?
To prove this, let us consider two cases: one with a single key bitcoin wallet, the other with a multisig bitcoin wallet.
Assume that you have a bitcoin wallet with a single private key, of which you have a backup (which is recommended always). Consider this situation: If a hacker gains access to your device (RAT’s, keylogger, malware etc) which is used to transact bitcoins, he can easily keylog your keystrokes, thereby gaining access to your passphrase, which encrypts your private key. Once the hacker gains access to your passphrase, he can effortlessly steal your bitcoins as only a single private key is required to be signed to spend bitcoins from the wallet.
With a multisig wallet, on the other hand, there is more than one key required to access the funds. If for, for example, there are 3 private keys and the wallet is configured to require 2 of those 3 signatures for a transaction to be executed, the level of security is increased. If one key is compromised, the hacker would need access to at least one more of the keys to steal your funds.
Alternate Key Locations
The trick to multisig security is storing your keys in different places. For example, you could store one key on your daily workstation (your laptop/mac/desktop etc), another on your phone, and the third in offline cold storage.
You could also choose to hand over one key to a trusted family member or lawyer, store it in a safety deposit box, or hire a third-party that specializes in security, like Third Key Solutions.
The downside of multisig wallets is that every time you are required to pay someone in bitcoins or buy something, you will need sign the transaction on at least 2 devices. It’s an extra step, but it may well be worth it for the sake of security.
If you run a business which deals in bitcoins in large volumes, multi signature security offers an advantageous way to process payments. Several people who manage the finances of the company can make use of multi signature functionality. Every time your business needs to process payments, your finance management team will sign the transactions, after which you and other executives will be alerted. As a keyholder, the transaction cannot be completed until you verify the details and sign them, thereby providing a bulletproof security structure for your business.
Who Offers Multisig Wallets?
Here are three wallet companies that offer multisig security:
Copay is an open source HD (hierarchical deterministic) multisignature wallet which has been developed by BitPay, the leading payment processor in the industry, with clients such as Namecheap, Microsoft, Zynga, and Virgin Galactic to name a few. The wallet is based on bitcore, yet another open source offering by BitPay. Copay is cross platform, and also offers dedicated mobile apps for both Android and iOS operating systems. You can create any number of wallets for various purposes. The system is simple, straightforward and is easy to use, even for beginners.
BitGo is one of the leading companies in the multi signature technology ecosystem. They have a powerful APi to create applications which utilize multi signature technology, and they also provide enterprise grade multi signature solutions. The company has attracted many high profile clients such as Bitcoin Foundation and tipping service ChangeTip.
Coinbase is one of the most popular bitcoin wallet service in the bitcoin ecosystem, which launched its multisig offering towards the end of October 2014. The vault is aimed at large scale bitcoin storage which demands a higher degree of security. Any transaction initiated in the multisig vault will be executed only 48 hours after the consignees have authorized it. THey also give users the option to use the regular Coinbase wallet to store a small portion of his funds for immediate foreseeable expenses, while storing a majority of funds in a much more secure multisig vault.