WALLETS & SECURITY

Multi-Signature Wallets

When it comes to crypto security, one private key controlling access to an entire wallet can be both powerful and risky, depending on how you intend to use your wallet. For individuals who are looking for a self-custodial wallet to store their funds, one private key is a great way to ensure maximum security protection of your assets. However if you’re representing a business or multiple investors combined, having a single private key could pose serious risks of extreme reliance on trust.

That’s where multi-signature (multi-sig) wallets come in. They’re designed to reduce single points of failure by requiring multiple approvals before any transaction can occur.

Multi-sig wallets are a foundational security step used by exchanges, institutions, and security-conscious investors looking to add layers of protection and accountability to how digital assets are accessed and moved.

What Is a Multi-Signature Wallet?

A multi-signature wallet is a type of crypto wallet that requires two or more private keys to authorise a transaction.

For example:

A 2-of-3 multi-sig wallet means there are three possible keys, but only two are needed to approve any transfer.
A 3-of-5 setup means five keys exist, but any three can jointly authorise a transaction.

This structure prevents any single individual or compromised key from moving funds on its own.

Single-key wallets = one person control
Multi-sig wallets = shared control and accountability

How Multi-Signature Wallets Work

Setup
- You choose how many total keys will exist.
- You choose how many are needed to approve transactions.
- Each key can belong to different people, devices, or organisations.
Transaction Initiation
- A transaction is created and broadcast for approval.
Verification and Signing
- Required signers review and sign using their private keys.
Completion
- Once the threshold number of signatures is reached, the transaction is processed and recorded on the blockchain.

Multi-sig logic is enforced by code, not by trust. It’s a rule coded into the wallet’s smart contract or underlying blockchain logic. Once the multi-signature wallet is created, there’s no way to revert it back into a single signature (one private key) wallet.

Pros and Cons of Multi-Signature Wallets

Here are the Pro’s & Con’s of using a Multi-Signature wallet.

Pro’s of Multi-Sig Wallets

Con’s of Multi-Sig Wallets

Eliminates single points of failure.

More complex to set up and manage.

Ideal for shared or institutional control.

Coordination required for each transaction.

Supports redundancy if one key is lost.

Risk of permanent lockout if too many keys are lost.

Highly customisable for advanced security setups.

Some platforms charge fees or have limited blockchain support.

Security Comparison and Real Risks

Like anything, there are advantages & disadvantages of adopting a multi-signature wallet

Advantages

Elimination of Single Point of Failure
A hacker can’t drain funds unless they gain access to multiple keys, which are ideally stored on separate devices or held by different people.

Enhanced Organisational Control
Businesses and DAOs often use multi-sig wallets so no single employee can move funds without approval.

Backup and Redundancy
Even if one key is lost, remaining signers can still access funds, depending on the configuration (e.g., 2-of-3).

Risks

Key Management Complexity
If multiple parties lose their keys and the signature threshold can’t be met, funds are locked permanently.

Coordination Delays
All required signers must be available to approve transactions. This can slow operations, especially for large teams.

Smart Contract Vulnerabilities
Some multi-sig wallets use custom smart contracts, which may contain bugs or exploits if not properly audited. (Note: Custom smart contracts are manually created. This risk can be disregarded if you intend to create a native multi-sig wallet).

Use Cases for Multi-Signature Wallets

There are many reasons why a person or a group would choose to use a multi-signature wallet. Whilst the initial intended purpose was for multiple authorities within a group investment to hold an equal private key, the level of security a multi-sig provides can also be desired for a number of other use cases.

Business Treasury Management
Companies holding crypto can use multi-sig setups to ensure no single employee can act alone.

DAO Governance
Decentralized organisations use multi-sig to collectively manage community funds or project treasuries.

Family or Group Investments
Joint investors can share control over funds, ensuring transparency and mutual agreement for transactions.

Personal Security Setups
Individuals can create personal multi-sig setups across multiple devices for redundancy. For example, keeping one key on a phone, another on a hardware wallet, and one in secure offline storage.