There is always a need to protect one’s Bitcoins from harm. As users are in full control of their funds, they also bear the full responsibility for whatever happens to their wallet balance. Multisig wallets are a great way to store Bitcoin in a secure manner. That being said, only 13% of the entire BTC supply is protected by multisig right now.
Why Multisig Matters
To be clear, there are some misconceptions as to when a Bitcoin balance is protected by mutisig. Storing cryptocurrency funds in a multisignature wallet is the most obvious way to determine whether or not that is the case. But at the same time, there is also pay to script hash, which is often confused with multisignature protection.
Until a transaction is spent, and the script itself is revealed, it’s hard to determine if P2SH is multisig for that particular wallet. Moreover, not every wallet balance is directly protected with mutisig either, although that does not mean there are no prerequisites before sending funds. A wallet backup can be protected by mutisig, while the regular wallet is not. In a way, this means the wallet should be chalked up to “camp mutisignature,” although it will not say so on the charts.
13% of bitcoins today are protected by multisig. A good start, but a long way to go. Chart by @hkalodner pic.twitter.com/9W8xo8Alnr
— Arvind Narayanan (@random_walker) July 16, 2016
The primary purpose of mutisignature wallet is ensuring that no one can steal funds without having m-of-n private keys. A regular Bitcoin address has one private key associated with it. Albeit obtaining such a key is not exactly easy, it is the only line of defense- other than an encryption password, which is underutilized by many Bitcoiners – to keep funds safe.
Multisig wallets, on the other hand, generate at least three different private keys. Without having two or more keys at one’s disposal, an assailant cannot transfer funds out of the account. A more secure environment is created, albeit it does not make it more convenient to use Bitcoin for the average person.
Solutions To Keep Funds Safe
Some people may wonder if it is indeed useful to switch from a regular to a multisig wallet for Bitcoin purposes. There is no straightforward answer to that, unfortunately. Holders of large amounts of Bitcoin may want to protect the majority of funds in a non-traditional wallet. The funds they need to “spend” – buying goods, exchange purposes, and whatnot – can be moved to a non-multisig wallet solution.
For those users who prefer not to deal with multisig directly, or just want to keep all of their funds safe, hardware Bitcoin wallets may hold the answer. KeepKey, for example, is an excellent hardware wallet to keep Bitcoin offline at all times. Then again, this is an additional device to keep track of, which may not be the best solution for everyone.
Header image courtesy of Shutterstock