Multi-Signature Crypto Wallets: Explained

Multi-signature crypto wallets need more than one signature (private key) to approve transactions, which makes them safer because no single person has total control. 

Crypto wallets are digital tools for storing and managing cryptocurrency. They come in different types like hardware, software, and paper wallets, each with its own security features. With tons of money in cryptocurrencies online, keeping them secure is crucial. That’s where multisig wallets come in.

Check out our list of best crypto wallets for more

In this guide, we’ll learn everything about these wallets, how they work, their use, pros and cons, and so much more. 

What are Multi-Signature Crypto Wallets? 

Unlike regular wallets that just need one private key to access your funds, Multi-signature (or multisig) wallets demand two or more keys to give the green light for any transaction. This extra layer of protection is like having multiple locks on a safe—no single person can open it alone, making it a tough nut for hackers to crack.

Think of it this way: imagine a treasure chest that requires a bunch of keys to open. Each key can be held by a different person or group. This setup is super handy in situations where you need extra security and oversight for approving transactions, like in big companies or when managing shared accounts.

Multisig Wallets Vs Traditional Crypto Wallets 

Multi-Signature Crypto Wallets Vs Traditional Crypto Wallets

The big difference when comparing multisig wallets to regular ones is in security and control. Regular wallets rely on a single key to sign off on transactions. But if that key gets into the wrong hands, it’s like leaving the front door wide open. 

Multisig, on the other hand, spreads the risk by needing multiple keys to sign off, making it way harder for anyone to sneak in and swipe your crypto. You can set this up in different ways, like 2-out-of-3, 3-out-of-5, or even more, depending on how tight you want security to be and how much flexibility you need.

How Do They Work?

Multi-signature crypto wallets work on a pretty slick system. Inside the wallet, there’s a contract that lays out how many signatures you need to make a transaction happen. It’s called the “M-of-N” rule, where M is the minimum number of signatures needed, and N is the total number of people involved in the wallet.

Here’s how it plays out:

  1. Setting up: First, everyone involved decides on the total number of participants and how many signatures are needed to move things along.
  2. Starting a transaction: Anybody in the group can kick off a transaction, whether it’s sending crypto to another wallet or signing off on a contract.
  3. Getting those signatures: The transaction has to collect enough signatures before anything goes through. Think of it like getting enough stamps on a letter before you can mail it.
  4. Making it happen: Once the required number of signatures is gathered, the transaction gets sent out into the blockchain. 

This setup isn’t just about beefing up security. It also brings a touch of democracy into the mix, spreading the power to make decisions among everyone involved. That’s why multisig wallets are often used in DAOs, speaking of which…

Use Cases of Multisig Wallets

Multi-signature wallets aren’t just fancy tech upgrades; they’re practical problem solvers for all sorts of situations. Check out these key ways people are putting them to use:

  1. Business Operations: Companies can use multisig wallets to make sure big money moves get the nod from multiple executives, adding extra layers of security and oversight.
  2. Estate Planning: When it comes to estate planning, multisig wallets can be a lifesaver. Families can divvy up digital assets and make sure nobody’s making big moves without the whole family’s say-so, keeping things tidy and fair.
  3. DeFi: In the wild world of DeFi, multisig wallets are like the glue holding everything together. They let folks make decisions as a group without needing a middleman, which is key for things like lending, borrowing, and trading. Plus, it keeps the whole system honest and open.
  4. Investment Teamwork: Picture this: an investment club where nobody’s in charge, but everybody’s got a say. Multisig wallets allow these investment groups to manage joint funds and make sure everyone’s on the same page before any big trade or withdrawal happens, building trust and keeping things transparent.
  5. Escrow Services: Trust is a big deal, especially when it comes to transactions between strangers. Multisig wallets act like an escrow service, making sure both parties have to agree before any money changes hands. It’s handy for online marketplaces or high-stakes deals where you might not know who you’re dealing with.

These examples show just how versatile multisig wallets can be, allowing people to work together and stay in control of their cryptocurrencies.

Benefits of Using Multi-Signature Crypto Wallets

The use of multi-signature technology in crypto wallets offers several impressive benefits:

Increased Security: Even if one key is lost or stolen, your crypto stays safe because you need more than one key to access it.

Prevention of Fraud: Since you need multiple people to sign off on a transaction, it’s way harder for one bad apple in an organization or company to run off with the assets. 

The QuadrigaCX case in 2019 is a great example of this and the limitations of single-signature wallets.

Flexibility in Access Control: Multisig wallets can adapt to what you need. You decide how many people have to agree before a transaction goes through, so you’re in charge of your security.

Error checking: More approvals mean fewer mistakes. With multisig, every transaction gets checked by multiple people, so errors are less likely to slip through.

Challenges and Limitations of Multi-Signature Wallets

While the benefits of multi-signature crypto wallets are undeniable, it’s essential to acknowledge some of the limitations and challenges as well. 

Complex Setup and Management: Setting up and managing a multisig wallet can be trickier than regular ones. Users need to grasp how to safely split and handle keys, plus juggle multiple signatures, which can bring some logistical headaches.

Higher Transaction Costs and Delays: Multisig transactions might cost more due to the extra data needed to process multiple signatures. Plus, having to wait for several approvals can slow things down, which might not be ideal for fast-paced trading.

Legal and Operational Risks: When there are multiple players involved, like in businesses or partnerships, things can get legally and operationally messy. If there are disputes or someone drops out, it can be a headache figuring out who’s in charge or what to do next.

Best Multi-Signature Crypto Wallet 

Here are some of the best multi-signature crypto wallets. 

  1. Electrum
  2. Sparrow Wallet
  3. Totalsig
  4. Safe Wallet
  5. Blue Wallet

Check out our complete list of best crypto multisig wallets for more.

How to Set Up a MultiSig Wallet 

How to Set Up a MultiSig Wallet 

Setting up a multi-signature crypto wallet involves a few steps, which can differ a bit depending on the wallet you pick. Here’s a rundown to help you out:

  1. Pick Your Wallet: Choose a multisig wallet that fits your needs. Some popular ones are Electrum, BitGo, and Blue Wallet. 
  2. Get the Wallet Software: Download the wallet software from a reliable source and install it on your device. Make sure it’s legit to avoid downloading malicious software.
  3. Start the Wallet: Open the wallet and create a new one. Look for the option to make it a multi-signature wallet, usually found in advanced settings.
  4. Set Your Rules: Decide on the rules for your multisig setup, like how many people need to sign off on transactions (like 2 out of 3 or 3 out of 5). This is key for how your wallet works.
  5. Create Keys: All co-signers will need their own set of keys (public and private). They might have to generate these keys separately and share the public ones.
  6. Add People: Put everyone’s public keys into the wallet to set up the multi-signature scheme. This links all the keys together, so transactions need everyone’s approval.
  7. Back-Up Everything: Keep copies of all your wallet info safe, including private keys and recovery phrases. You’ll need these if your device gets lost or breaks.
  8. Test Run: Before you start moving your crypto around, do a test transaction with a small amount. This makes sure everything’s set up right, and everyone can sign off on transactions.
  9. Start Using It: Once you’ve tested it out, your multisig wallet is good to go. Just remember, everyone has to agree on transactions, so it takes a bit more coordination.

Each step is crucial, so take your time and make sure everything’s set up right. If you need more help, check out the user guide or support section for your chosen wallet.


Can Multisig wallets be hacked?

Multisig wallets can still be hacked, but they’re often safer than regular wallets. Their setup can be more complicated, and needing multiple signatures makes them tougher targets. But it’s crucial to pick a trusted provider, follow security best practices, and keep your software updated to lower the risk of hacking.

Can you tell if a wallet is multisig?

Yes, you can usually figure out if a wallet is multisig by looking at its features or settings. Multisig wallets often let you add more than one signer or need multiple signatures for transactions. Plus, the wallet provider usually says if they offer multisig in their info or ads.

Are multisig wallets safe?

Multisig wallets are usually safer than regular wallets. They need multiple signatures to approve transactions, making it harder for someone to steal your money. But their safety also depends on things like how strong your keys are and how well the wallet provider protects them. So, if you use them right and follow security tips, multisig wallets can be a pretty safe choice for keeping your crypto secure.

Are Multisig wallets smart contracts?

No, multisig wallets are different from smart contracts, but they can work together. Multisig wallets need several signatures to approve transactions, while smart contracts are self-executing agreements written in code. However, you can use multisig wallets with smart contracts to make transactions more secure and automate certain tasks.