What Is a Multisignature?
When you want to send funds from your wallet, a transaction needs to be created as well as signed.
By signing this transaction, you are saying in a digital way that you are the owner of the funds in question, have a key to manage them, and approve the transaction.
Strengthening Transaction Security
To truly understand how multisignatures work, we need to discuss single signatures first.
A single signature cryptocurrency wallet typically requires only one signature to sign a transaction, and this is easy to comprehend.
On the other hand, multisignature is a type of wallet that requires more than one signature to sign a transaction.
A multisignature wallet is a wallet shared by two or more users, known as co-payers.
Depending on the wallet type, the number of signatures required to sign a transaction is usually equal to or lower than the number of co-payers in the wallet.
Balancing Security and Risk
In terms of features, all co-payers can see the funds and transactions of the multisignature wallet.
This type of wallet requires one or more co-payers to sign a transaction in order to send funds, which enhances the security of your funds.
Each co-payer has a unique recovery phrase.
However, if one of the recovery phrases is lost, there may not be enough co-payers to sign a transaction, resulting in the inability to spend the wallet’s funds.
While this adds a higher level of security, it also introduces a higher level of associated risk.