Crypto 101: Multi-sig
Part of our mission at Casa is to help teach people about cryptocurrency and why it’s important. We’re starting a series of Crypto 101 posts, which we’ll post here and, soon, on our fancy new website (just launched today 🙌). We hope these will be a good resource for those who want short explainers on tough topics.
Our first post is on multi-signature (“multi-sig”) wallets. Multi-sig is an important concept and is core to the Casa product. But when my mom asks me what Casa does, I can’t just come out guns blazing using words like “multi-sig”. That’s a surefire recipe for the that’s-nice-honeys. So, here is my attempt at explaining multi-sig in a way that’s short and to the point, but still gives a good picture for the crypto-uninitiated.
The one sentence intro
“Multi-sig” is short for multi-signature, and it means that spending money requires more than one approval or “sign-off”.
An example from the “Real World”
Think about when a married couple sells their house (let’s just pick two random names, first ones that come to my mind for whatever reason…Bob and Alice). Assume they legally co-own the house. In order for ownership of the house to transfer to the new buyer, both Bob and Alice have to give their approval by writing their signature on separate lines of the contract. Bob couldn’t just go and sell the house without telling Alice, because he needs Alice’s signature to complete the transaction. Sorry Bob, you can’t secretly sell your house to buy more Tron. $TRX #whenmoon
Multi-sig in cryptocurrency
Imagine Bob and Alice share a credit card with their daughter, Mary. If Mary goes out and spends a bunch of money on the credit card, Bob and Alice don’t find out about it until after the fact. Mary gets grounded for life, but the money is spent.
With cryptocurrency, Bob and Alice have the ability to program restrictions into their money. They could utilize a multi-sig wallet (think wallet = spending account) to rein in Mary’s unscrupulous spending. With a 2-of-3 multi-sig wallet, the family would require any 2 out of the 3 people to approve a transaction before the money can be spent. So the next time Mary wants to buy a new duvet cover for $1,399 to go in her college dorm room, either Bob or Alice have to sign off too.
How Casa uses multi-sig
When many people think of multi-sig, they think of it like the scenario above, where different people manage each signature. With Casa, we’ve taken a slightly different approach, using multi-sig to add security to a single person’s cryptocurrency wallet. Our setup is a 3-of-5 multi-sig wallet, which means at least 3 signatures are required to spend any cryptocurrency. The signatures come from different devices (hardware wallets such as Trezor), which are all in different locations, but owned by one person. This provides significant security against hackers and in-person attackers who want to steal a user’s cryptocurrency, because a transaction must be physically approved from 3 different locations before it can be completed.
There are many other potential nifty uses for multi-sig, but we’ll save that for Crypto 201.