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If I lose my mobile, then also I can access my multi-signature wallet using Key 2 and Key 3. The only thing we should take care of is keeping all the keys on different devices. But still, there are many questions related to addresses, Where to send funds for multi-signature wallets, or How a signature can be done.
First, discuss three terms: Public Key: A public key is a cryptographic code that allows users to receive crypto-currencies into their accounts. Private Key: As discussed earlier, a private key is used to send funds and verify transactions. Users have to keep it safe. Public Address: It is a hashed version of a public key.
When a user wants to receive funds, He reveals his public addresses to the other party. So consider, We want to create a Multi-Signature wallet having three addresses. All three addresses have their public key, private key, and public address.
Also, define the number of signatures required to make a transaction. For example, here, two signatures are required. The public address of the Multi-Signature wallet Then, it will generate one public address of a multi-signature wallet, which can be shared with the sender party. All the funds will be received at this address only. With a public address, It also generates a Redeem Script.
Now technically, we know how multi-signature wallet addresses are generated. Multi-Signature wallet Transaction Signing We are continuing with the above scenario, Address-1 initiating one transaction using a multi-signature wallet send 10 BTC to any address. Hence, Address-1 will first signed the transaction using its private key Private Key 1. But to complete a transaction, we require one more signature. So Address-1 shares signed transaction with Address-2 and Address Any one of them will sign the transaction.
Hence, we have two signatures as per requirement. This is how the transaction is processed. Armory Armory is an open-source desktop bitcoin wallet. Armory is the most secure and allows users to generate and store Bitcoin private keys. It supports cold storage in which all private key data is available only on the offline computer.
This reduces the attacks. It also supports multi-signature. It allows users to create Multi-signature addresses using Lockboxes in an entirely distributed way. It is the most powerful bitcoin wallet and also supports multi-signature technology. Key It is also known as the Client key. The client or user stores it. It is used to initiate and sign a transaction from the client-side.
Key It is also known as the BitGo key. BitGo holds it. And, BitGo checks if the transaction is satisfying all the policies or not. And sign the transactions initiated by the client. Key It is also known as the Backup key. It is stored by the client offline. It is used for disaster recovery purposes or when a user lost his client-key. Coinbase Coinbase is available as a web wallet. It is a hosted bitcoin wallet. It also provides non-hosted multi-signature wallets where users can control their private keys.
CoPay CoPay is available as a mobile and desktop wallet. It is an open-source HD bitcoin wallet. Here HD — Hierarchical Deterministic. HD allows user to back up your wallet via seed phrase, which protects your funds from loss of access. But the user is responsible for storing private keys. Before learning more about why users prefer such wallets and what its benefits and drawbacks are, let us start our inquiry with the primal question: what is a multi-signature wallet. What is a Multi-signature wallet?
Whenever a user transfers funds from his or her wallet, the cryptocurrency network creates a transaction. By signing on this transaction digitally, the user authorizes the network to take care of their funds and deliver the amount to the intended address. Some wallets need only one signature as authorization, and there are wallets shared by multiple users or co-owners that require multiple signatures.
Depending on exactly what type of a multi-signature wallet one you are using, the number of signatures required to approve and authorize a transaction could either be equal to or fewer than the number of co-owners.
For example, if someone is using a type of multi-signature wallet, it means that the wallet is shared by three users and requires three signatures to authorize any transaction. On the other hand, a type multi-signature wallet implies that it is shared by three people and requires two signatures to authorize a transaction. How does a multi-signature Bitcoin wallet work? Let us discuss the functioning of a Bitcoin multi-signature wallet. The norm, before multi-signature wallets started gaining popularity, was to store bitcoins in a single-key wallet.
Only one person had to authorize the transaction, and anyone who knew the private key of the wallet could complete the transfer of funds. While this was a faster and easier way to transfer funds, it was a vulnerable way in terms of security. It had only one point of failure.
Bitcoin multi-signature wallets solved this vulnerability by adding multiple layers to the transfer. In a multi-signature bitcoin wallet of the variety, for example, if co-owner A wants to transfer funds, the wallet creates a transaction which first gets signed by the co-owner A. Now, until the same transaction is signed by the other co-owner, the fund does not move from the wallet.
Once the co-owner B signs the transaction, the wallet broadcasts it to the network and finally transfers the funds. The logic of multi-signature Bitcoin or Ethereum wallets works in a fashion that up till the time the second co-owner does not sign the transaction, the transaction proposal remains valid in the wallet. It does not expire. There is no time limit for the co-owner to sign. There is also no hierarchy among the two co-owners involved in the transaction.
Any one of the co-owners can originate the transaction, and all the other co-owners can sign and approve that transaction whenever they want. The procedure is slightly different for a multi-signature wallet. Here, any one of the co-owners can originate a transaction, and any one of the two remaining co-owners can sign the transaction to get the approval done.
A multi-signature wallet helps to get rid of the security concerns that come with a single private key mechanism. It reduces the dependency on one person and, at the same time, makes it difficult for cyber attackers by increasing the number of potential failure points that the hacker would now have to address.
No dependency on one device.
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