A multisig wallet is a type of crypto wallet which needs multiple private keys to sign the transaction before it can occur. Some exchanges, especially decentralized exchanges, incorporate the multisig wallet into their operations. In addition, peer-to-peer trading platforms use the multisig feature to offer their users a decentralized level of protection. Multisig wallets may be in Electrum multisig, Trezor multisig, and even Gnosis multisig.
Multisignature wallets demand more than one cryptographic signature to access the wallet.
With the issues of hacks and frauds in the crypto space, multisig wallets reduce the chances of an attacker making off with the crypto holdings in a wallet. However, it still has its issues because if one of the critical holders refuses to sign their key, a transaction can't occur. Likewise, if one of the holders loses their key, no transaction can occur.
Where are multisig wallets used?
Some trading platforms use this wallet to secure the transactions of their users. In some cases, an exchange may utilize multi-signature storage to secure their cold storage funds.
Let's say an attacker has access to the cold storage wallet; they need multiple keys to sign and initiate any transaction, which may be challenging to get. Multisig wallet acts as an insurance process because it reduces the chance of stolen funds.
What are the limitations of multisig wallets?
Some multisig wallets demand that several users out of the total keys must be signed in before a transaction can occur. So it could be two keys out of three.
If the consensus number of keys is lost, it is impossible to access the crypto holdings. This is because multisig wallets do not have a backup. So once the keys are lost, the funds can't be accessed by anyone.