A multisig wallet, short for “multisignature wallet,” is a type of cryptocurrency wallet that needs more than one signature or approval before a transaction can be made.

Multisig wallets, also known as multisig vaults or safes, are a type of crypto wallet that needs two or more private keys to do certain things. This is done to make sure that the money in the wallet is safe by requiring that multiple people sign off on transactions before they are sent. A multisig wallet needs signatures from more than one address, and if one of those signatures is missing, the transaction can’t go through. Think of it as a safe with different keys that must be used together to open it.

In a traditional cryptocurrency wallet, the user has full control over the private keys that control their funds. This means they can start transactions without needing anyone else’s permission.

A transaction can only be carried out if a specific number of those keys agree to it in a multisig wallet, where there are multiple private keys in charge of the funds.

Multisig wallets are thought of as a “seedless” method of self-custody because of this setup.

There are many different types of multisig wallets, but there are two main types. The first type, most commonly three-key wallets, requires all parties to sign or attest to a transaction. The second type, two of three or three of five, requires a certain number of participants out of the total pool to participate for a transaction to go through.

A multisig wallet’s advantages

There are several other advantages to using a multisig wallet, in addition to increased security and multi-party participation. Multisig wallets are much better than traditional hot or cold wallets, especially for institutions and DAOs, because of the way they are built.

Buildable

A multisig can be easily modified or upgraded to meet the needs of an institution or DAO because of its position as a smart wallet. Developers can build on top of the wallet to make protocols and models that allow for more complex actions, such as voting in a DAO or asset management services. Thanks to platforms like Juicebox, groups of people have been able to create community-owned, programmable wallets that take advantage of multisigs.

No “key person” risk

First, the traditional “key person” risk is removed by the design of multisig wallets. Key person risk occurs when a business depends almost entirely on one person to succeed. This risk is all too common in cryptocurrency, especially when only one person knows the seed phrase for a wallet.

Greater openness and honesty

When compared to other wallet types, multisig wallets offer greater transparency. On chain or in the code, transaction rules, signers, and actual transactions are all made available to the public. This makes it easy to see what the rules are for transactions and who is responsible for how money is spent.