Ergo Multisig Wallet: What is it and How to Create One?
November 28, 2022
The Ergo ecosystem has seen the creation of many new wallets this past year, and as a result the community is enjoying much more ease of use and accessibility when interacting with Ergo dApps. Let’s take a closer look at one of the new wallets (Minotaur) and its multisig wallet function (the first on Ergo).
What is a Multi-signature Wallet?
A multisig wallet is a “digital wallet that operates with multisignature addresses. This means that it requires more than one private key to sign and authorize a crypto transaction or, in some cases, that several different keys can be used to generate a signature.” The reason that this type of wallet is valuable to an ecosystem is because it adds a second layer of protection to the end user. A multisig wallet requires that everyone with a private key confirms the transaction in order for it to be authorized and executed. This provides an added layer of security for protection against hacks because an attacker would need all of the private keys in order to gain access to the wallets funds.
How Does a Multi-signature Wallet Work?
Multisig wallets work in a step by step process. The number of users that are utilizing a particular multisig wallet will directly correlate with how many steps there are to complete a transaction. The process starts when one user decides to make a transaction. The transaction in question will essentially be pending until all of the other users sign off on approving said transaction. It is also important to note that multisig wallets do not have a hierarchy. For example, if the multisig wallet requires four out of five private keys to validate a transaction, no specific signature is needed to finalize the transaction. Instead, any four out of the five users can sign the transaction in any order they wish. Transactions do not expire. Pending transaction proposals will remain incomplete until all required signatures are submitted.”
How To Create A Multisig Wallet?
In order to create a Minotaur multisig wallet, you will first need to install it from the snapstore. Each of the signees that will be responsible for providing signatures must create a copy of the wallet on their own device. Please follow these steps:
- A wallet name is entered for each person’s portion of the multi-sig wallet. Each wallet name that is entered by different users does not have to be the same.
- The total number of users, as well as the number of required transaction signings need to be entered. You can have a maximum of 20 users for one multisig wallet. All users must enter the same values for the number of users the multi-sig wallet will have, as well as the number of signatures it takes to authorize a transaction.
- Each user must enter their own private key, as well as the public key for that particular multisig wallet.
The address of the multi-sig wallet is displayed to each signee. Each signee’s copy of the multisig wallet is created as soon as they approve the address. The following step by step video is another helpful resource.
Types of Multi-Signature Wallets
Multisig crypto wallets are often recognizable by the number of private keys and the number of signatures required to authorize a transaction. Multisig crypto wallets can include but are not limited to the following:
1 of 2 Multi-sig Wallet
These types of wallets are most useful when there are only two people sharing a multi-sig wallet. With 1 of 2 multisig wallets, only one of your private keys are necessary to complete a transaction. This requires that both parties trust each other, which depending on the scenario, can have potential drawbacks.
2 of 2 Multi-Sig Wallet
The purpose of 2 of 2 multisig wallets is to keep private keys on two separate devices. For example, one private key could be kept on a computer and the other on a smartphone. This ensures that transactions cannot be completed without a signature from both devices.
2 of 3 Multi-Sig Wallet
This type of multi-sig wallet requires 2 out of 3 existing private keys to authorize and complete transactions. You can replace the 2 of 3 with higher numbers if more users are utilizing the same multi-sig wallet. For example, you could replace the “2 of 3” with “3 of 4” if you have 4 users instead of 3 users. In this case, it would take 3 out of the 4 users to complete a transaction.
Pros and Cons of MultiSig Wallets
Multisig wallets add an additional layer of security when compared to traditional non-custodial wallets. The fact that one can have multiple private keys, or multiple people can have a private key, essentially creates a 2 factor authentication mechanism for the wallet. A multisig wallet also promotes collaboration among team members when it comes to the seamless utilization of their pooled funds. Multisig crypto wallets ensure that the majority of signees are on the same page. They have to agree on a transaction in order for it to be executed.
A significant drawback of multisig wallets is that if one or more of the members forgets or loses their private key, the funds in question will be inaccessible. Multisig wallets also require a collaborative and communicative relationship between those who are working together toward a common goal. This could potentially be a con because one must rely on their team members in order to execute a transaction. It takes the autonomy away from the individual.
Multisig wallets provide a critical security enhancement in an industry that is too often riddled with scams and misuse of funds. As the blockchain industry strives to build a trustless and decentralized space, multisig wallets offer a viable solution for pseudo-trustless interactions. They are not a perfect solution, but by increasing the required number of signatures for a transaction, we diminish the ability of a bad actor to exploit the system. In a space where collaboration is vital for success, multisig wallets add an efficient way for a team to access shared funds and maintain transparency.