Multi Signature Wallets: An Introduction
By: Chris Metcalfe
Tags: Cryptocurrency Investment, Blockchain, Cryptocurrency, Ethereum, Bitcoin

Multi Signature Wallets: An Introduction

One of the unique features Bitcoin brought to finance was the ability to set up multisignature wallets which can be created securely by participants around the world. Before we explain how multisignature wallets work, however, let’s take a look at what was available before Bitcoin was launched in 2009.

The expansion of the internet, and online banking, helped multinational organizations more effectively manage their resources and money, as members could access a shared bank account using their laptops.

The problem, however, is the bank: organizations must trust that the bank will remain solvent, will keep their data safe, and that the members who have access to the funds don’t lose their username and password (or get hacked). While the former is not an issue with most first world banks, there are many parts of the world that do not have access to institutional banking with a level of security that we in the US take for granted.

This makes organizational finance much more difficult for those who need it.

Bitcoin has often been called programmable money. Bitcoin wallets can be created to operate under certain conditions. One of these conditions is requiring a certain number of signatures to transfer funds. These are called multisignature wallets, and they’re incredibly useful.

A multisignature wallet, or an “m of n” wallet, has a list of public keys (3 or 5 are common), and requires a certain number (2 of 3, or 3 of 5) of private keys to be used for the wallet to function. The function is obvious: no single person in an organization can spend Bitcoin without first getting a majority of the co-signers necessary to agree to spend it. Co-signers might be board members, C-suite executives, or some other combination as desired.

This benefits not only users, but banks as well, as it makes cyberattacks more difficult to accomplish. An attacker may be able to get a hold of one person’s private key, but multiple persons-especially if the key holders identities aren’t public-are much harder to attack.

Examples

A startup is about to host an ICO. The founders have worked together for many months, but are geographically separated and don’t want the temptation of millions of dollars worth of Ethereum in the hands of any single person. They create a multisignature wallet that requires a simple majority (3 out of 5 of them) to transact. Keys are given to the CEO, their VC backer, the founders, etc, as needed.

An entrepreneur wants to start a small corporation to serve his village. The amount of money is small, and bank services are too expensive to use. He creates a multisignature wallet with two other people that requires 2 out of 3 of the founders to sign a transaction, keeping their money safer from one member getting their private keys stolen or compromised.

Multisignature wallets can be understood as logical if-then statements. Any combination of if-then can be turned into a smart contract that acts as a multisignature wallet. The above examples are basic: “If m of n people sign with their private keys, then allow the transaction.”

But multisignature wallets don’t need to be restricted to an m of n only structure. For instance, they can also be programmed to allow one person full access OR multiple signatures needed. This might work in a will:

Jennifer wants full control of her cryptoassets while she’s alive, but if she dies, she doesn’t want her private keys lost forever. She uses a smart contract to give her private key full access to her cryptoassets, but restricts the other keys that access it to require multiple people to transact. She gives one key to a trust, which keeps it secure, and another key to a trusted family member or friend to use upon her death.

The smart contract will transact if Jennifer uses her private key alone OR if two (or three, etc) of the other private keys are used.

As one can see, the multi signature wallet has a variety of uses, and creates opportunities for those willing to learn how to use them…and those that do, will be on the leading edge of financial technology.

What Hedge Offers

Security:

Hedge leads the industry in providing secure wallets with proprietary best in class distributed cold storage practices. The keys to your funds never touch the internet and cannot be stolen by hackers. There is no single point of failure that can jeopardize your fiduciary.

Applications:

Hedge offers application interface solutions to make your apps work with our apps. Small regional bank looking to compete? Incorporate Hedge’s APIs into your app and give your customers the ability to buy and sell bitcoin through your institution.

Access:

Hedge is the only firm in the industry that gives you 24/7 access to your funds. We net settle transactions in a proprietary process that maintains the safety of keys in cold storage, but with near real time trading.

Let Hedge manage blockchains; you manage your clients.