November 11, 2019

Coincover Blog | What is a Multi-Sig Wallet and Why Should I Care?

What is a multi-sig wallet and why should I care?

A multi-sig (multi-signature) wallet performs the same function of signing transactions as a regular Bitcoin wallet but does so in a more secure way. Multi-sig wallets require two or more private keys before the Bitcoins, or other cryptocurrencies can be released.

To simplify things, some people like to think about a multi-sig wallet like a safe deposit box in a bank – they usually come with two locks and two keys. When going to the bank, both you and the bank manager need to be present at the same time to open the box and one can not open the box without the other.

Coincover customer's funds are protected within multi-sig wallets which facilitates the ability for us to deliver many products and services to our customers. More about that in a minute but firstly let's look at how it works with our partner BitGo.

BitGo multi-sig wallets consist of three private keys: one held by BitGo, one held by the user and one held on behalf of the user by a Key Recovery Service (KRS) such as Coincover. Two signatures are required on every transaction on a BitGo wallet, and in the usual case, this would be done by BitGo and by the user.

But in the case where the user has lost access to their key then it would be co-signed by BitGo and the KRS, Coincover.

20% of all Bitcoin is lost forever due to the loss of the private key which is the only way to get into a regular wallet. With most wallets, lose your private key and you and you lose access to your funds. This is why more than 10,000 wallet holders trust Coincover.

With Coincover we hold a back up key for every wallet. If our customers lose access to their multi-sig wallet, a dedicated team is waiting to help recover funds – with no hassle and as quickly as possible.

Some multi-sig wallets have even more levels of security and could require more majority keys to open the wallet and transfer cryptocurrency. For example, a 3-of-4 wallet would require three out of four signatures to confirm a transaction while 3-of-3 would require all three of the signatures of a wallet to be used.

Do I need to worry about getting a multi-sig wallet?

This comes down to how much you care about the contents of your wallet. Over time cryptocurrency is becoming increasingly valuable and as such holding cryptocurrency comes with more risk; such as security risks through hacking and fraud as well as the risk of losing access to a wallet through misplaced keys.

The first benefit of a multi-sig wallet is the security of the transaction. The more signatures needed to confirm the transaction, the less likely it is that someone or something could hack into an account and move funds because the likelihood of hacking two or more keys is highly diminished.

The second and equally beneficial reason for using a multi-sig wallet is the elimination of the possibility of permanently losing access to funds. In a single signature wallet with just one key, the user has all the responsibility for taking care of their private key. Should they lose the private key then they will forever lose access to the wallet and the funds within it.

But with a multi-sig wallet, a spare key is kept for the user and should the user lose their key then the Key Recovery Service, such as Coincover, can co-sign transactions on the users' behalf and have the funds deposited into a new wallet to which the user has a private key and can regain control.

What are the benefits of using a BitGo multi-sig wallet protected by Coincover?

When it comes to cryptocurrency solutions one must consider not only the technology being utilized but the brand, reputation and credibility of the company and solutions used. This is why Coincover chose to partner with BitGo, the industry leader in multi-sig wallets. The BitGo wallet has the most advanced multi-sig capabilities and advanced policy management, protecting against theft and loss with features such as:

·     Rate limits: to set limits including daily volume, and transfer limits.

·     Address whitelists and blacklists: to help ensure wallet addresses aren't sent to accidentally.

·     Webhooks: to allow for third parties to monitor for suspicious activity.

·     Multi-user approvals: wherein transactions are authorized by multi parties before being executed.

·     Two-factor authentication: to help you protect your account with a password as well as a device.

Combined with the features offered above by BitGo, a Coincover multi-sig wallet delivers the most secure and protected solution on the market:

·     Totally secure: keys are encrypted and stored offline in a highly secure vault in several UK locations, so they are completely safe.

·     Risk-free: funds can only be accessed with your authorization or with BitGo so your funds stay secure.

·     Fast recoveries: your funds are retrieved and back to you as soon as possible.

Coincover customers contact us as soon as they realize they have lost their private key. Once Coincover has confirmed a customer's identity to ensure they are indeed the owner of the wallet, Coincover will sign a transaction with BitGo to transfer funds from the compromised wallet to another wallet to which the customer has access.

Compared to other solutions out there, using BitGo multi-sig wallets protected with Coincover give the benefits of holding, owning and being in complete control of your own Cryptocurrency together with the advantages of easy and instantaneous trading in a safe and secure environment. Coincover is the first and only service to guarantee digital funds will not be lost or stolen. By combining insurance with the latest security features, we significantly reduce risk and make digital currency investments simple, safe and secure for all customers.

What else can a multisig wallet be used for?

For companies with multiple stakeholders/directors:
Multi-sig wallets can be used by companies in a way that ensures a majority of the stakeholders with access to the wallet unilaterally agree on transactions to be made. For example in a company with five directors, it is possible to have a 3 of 5 signature wallet in which three of the five directors must sign any transaction, ensuring that not one single director could abscond with the funds.

Escrow services:
Multi-sig wallets can also be used in the facilitation of escrow services. While the cryptocurrency market is still young there remains a fairly high level of distrust, especially when it comes to larger transactions or dealing with unknown entities. For example, a buyer may want to purchase a large amount of Bitcoin from a seller. The buyer will not release cash until they have received the bitcoin but the seller will not release the bitcoin until they have received the cash. So utilizing a multi-sig wallet the buyer places the Bitcoin into a multi-sig wallet. Both parties can agree for a neutral third-party to release the Bitcoins to the buyer once the cash has been received, or the third-party can release the Bitcoins back to the seller if the cash is never received.

Partner accounts:
Wherein a husband and wife have a joint account, both signatures are required to spend the Bitcoin or another cryptocurrency, preventing one spouse from spending the currency without the approval of the other.

Child savings accounts:
Here a wallet can be set up so a child has access to funds with the parents' permission, but the parents are not able to spend the currency without the child's permission either.

Asset distribution upon death:
All the while the wallet holder is alive they have full access to and control of their funds, but should they die or be otherwise incapacitated the two alternative key holders can open the wallet and redistribute the contents per the terms and conditions of the deceased's final wishes.

Regardless of whether a transaction has come from a single signature wallet or a multi-signature wallet, all transactions are broadcast to the network and are subsequently confirmed through a process called mining.

Check out our Multi-Sig Wallet page here.