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How to use a Multi-Signature Wallet

Posted by Tangem on
How to use a Multi-Signature Wallet

Once you start exploring the best way to store and manage your crypto, you will be exposed to new concepts such as Multi-signature. You might think that Multi-Signature hardware wallets are for advanced users. Still, at the end of this article, you will understand how anyone can take advantage of this technology.

How does cryptographic system work?

 

Multi-signature technology was implemented in cryptocurrencies a couple of years after Bitcoin was created. But, before we go deeper into the subject, we must remember how the cryptographic system used in cryptocurrencies works.

 

This system is called asymmetric cryptography, and it consists of producing a pair of keys, public and private, so that you can own, send, and receive crypto assets.

 

The public key is similar to an email address; you use it to receive funds. The private key unlocks access to the funds and allows you to extract them without revealing the private key.

That is known as a one-way mathematical function; with your private key, you can access your public key but never the other way around.

 

The downside of the one-way function is that if you lose your unique private key, you will also lose access to your money. That’s very discouraging for many users who look to have complete control over their crypto because there’s no custodial third party to recover your funds if you lose your private key. Also, having just a unique key to manage the funds in a wallet limited the use case for organizations that wanted to use crypto because the person holding the key could extract the funds without the consent of all the parties in charge.  

 

Having that in mind, we can now explore Multi-Sig.

 

What's Multi-Sig?

 

Multi-signature technology is a safety feature enabled by asymmetric cryptography, allowing two keys to access the same wallet and sign a transaction independently.

With this layer of security, users can mitigate the risk of a single-key hardware wallet.

 

Multi-Sig wallets allow you to configure how many keys must sign the transaction to extract funds, making it very convenient for different use cases.

 

In business, for example, more than one person may share the responsibility of a funded account. Therefore, the CEO can hold one key, and the Financial Officer, the second key. If the wallet is configured to request 2-of-2 signatures, the transaction will not be completed until both signers agree to do so.

 

Multi-Sig is also very useful for individuals looking to protect their funds from phishing attacks. If one of the two keys is compromised in a phishing attack, the bad actor won’t be able to steal your funds without all the signatures.

 

Another problem that Multi-Sig solves is the redundancy problem. With single-key wallets, there is a need to have another way to recover the private key if you forget it or lose the device where it is stored. Therefore, many wallets started using seed phrases as a solution. The seed phrase is a 12 or 24 “easy to remember” word phrase that will allow you to restore your private keys if you lose access to your hardware wallet.

 

The downside of seed phrases is that it has many vulnerabilities and risks. Cointelegraph, the digital media specialized in blockchain technology, published an article stating that addresses generated from some type of seed phrases are continually monitored by bad actors and potentially compromised.

 

But, a Multi-signature wallet can give you redundancy without exposure.

 

Backup solution

 

The Tangem Twin hardware wallet is a set of two cards, with self-generated keys programmed to access the same Bitcoin wallet using a blockchain-native 1-of-2 multi-signatory feature.

 

The “Tangem Tap” mobile wallet app acts as an interface to process transactions and requests signatures from your cards’ secure element chips. The cardholder ensures their possession of the keys by tapping their card on the phone.

 

With Tangem TWIN cards, the Tangem Tap app will automatically recognize the TWIN cards and enable multi-Sig for that set. You can rest assured that those two keys will be able to access the same wallet in a 1-of-2 scheme.

 

However, if you lose one of the cards and someone finds it, you can protect the wallet by extracting your funds with the passcode security feature. As a result, a lost card is acceptable since you have a redundant TWIN to access the wallet and anyone who may find the lost card would be prevented access because of the password protection. In this event, you can simply send the funds to a new Tangem TWIN set to ensure the same level of protection in the future.

 

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