Have you felt a tiny stab of panic when a phishing link almost got you, or when a friend shared how they lost thousands of dollars in a wallet breach? If you have, then I want you to know you are not alone. The deeper you get into crypto, the more you realize how scary it can be to hold valuable assets in a wallet protected by just one key.
If someone else gets that private key, your crypto is gone. There is no bank to call, no password reset, no undo button. This is why more and more crypto holders are turning to something better, multi-signature wallets.
In this article, I am going to explain everything you need to know about multi-sig wallets because your crypto deserves to be safe. So, take a deep breath because you are about to upgrade your crypto security knowledge and probably your wallet too.
KEY TAKEAWAYS:
- A multi-signature wallet is a crypto wallet that requires more than one private key to approve a transaction.
- To set up a multi-sig wallet, you need to specify how many total keys will exist and how many will be needed to sign a transaction.
- Multi-signature wallets reduce the risk of theft, add an ethical layer of safety, and are perfect for teams, startups, and DAOs.
- You should use a multi-sig wallet if you are holding more crypto than you’d want to lose, are managing money for others, or running a project.
What Is a Multi-Sig Wallet?
A multi-signature wallet, often called multi-sig, is a crypto wallet that requires more than one private key to approve a transaction. Instead of having a single private key that controls your entire wallet, a multi-sig wallet can be set up to require, say:
- 2 out of 3 keys to sign a transaction
- Or 3 out of 5
- Or even 5 out of 7
It is up to you to decide since it is customizable. You can consider it a group vault that only opens when the majority agrees. Common examples of this type of wallet include Gnosis Safe (now called Safe), Sparrow Wallet, Casa, and Electrum.
Read Also – Best Practices on How to Secure Your Crypto Wallet
How Does a Multi-Sig Wallet Work?
Here’s the simple breakdown of how this type of wallet works:
- You set up a multi-sig wallet, specifying how many total keys will exist and how many are needed to sign a transaction.
- Each key can be held by a person, stored on a hardware wallet, or managed by a trusted third-party service
- When a transaction is created, it must be signed by the required number of keys for the transaction to go through.
Why Should You Use a Multi-Sig Wallet?
You don’t just need a multi-sig wallet because it sounds fancy. You should get one because you’re holding real value, and you need peace of mind. Alongside this fact, here’s why multi-sig wallets make sense to own:
- You reduce the risk of theft: In a 2-of-3 multi-sig wallet, a hacker would need to compromise at least two keys, which reduces the chances of theft.
- It is perfect for teams, startups, and DAOs: If you are managing funds for a project, DAO, or crypto startup, where trust is tricky, multi-sig wallets ensure accountability.
- It adds an ethical layer of safety: Let’s say you’re holding family assets, or funds for a trust, or group investment, multi-sig ensures shared control since no one person can make decisions alone.
Setting Up Your First Multi-Sig Wallet
If you are ready to try this category of wallet, here is a step-by-step guide using Safe (formerly Gnosis Safe):
- Go to Safe’s official website.
- Connect your wallet (e.g., MetaMask)
- Create a new Safe: You will have to name your safe, choose the number of owners, add wallet addresses for each owner, and set how many confirmations are required.
- Fund your Safe wallet
- Create a test transaction: Try sending a small amount to another wallet to see how each owner is prompted to approve before it goes through.
When Should You Start Using a Multi-Sig Wallet?
It is okay to use a single-key wallet for daily spending. However, it is better to switch to a multi-sig wallet in the following situations:
- You’re holding more crypto than you’d want to lose
- You’re managing money for others
- You’re running a startup, DAO, or project
- You’re serious about crypto and security
Final Thoughts
Multi-sig wallets are one of the best security tools in crypto. Luckily, they are free, open, and available to you right now. You do not need to wait for a hack before you take the next step to secure your crypto’s future.
References
- investopedia.com – Multi-Signature Wallets: Definition and Use Cases
- techtarget.com – What is multisig (multisignature)? | Definition from TechTarget
- bitpanda.com – What are multi-signature wallets and how do they work?
