4 Ways How a 2-of-3 Multi-Signature Wallets Could Be Useful

“Key Business Risk” in traditional business refers to when a company or firm relies too much on one individual to succeed. In a Cryptocurrency Business where stakes are always high, this type of business model or practice can induce undesirable monetary repercussions to the business.

The most infamous example may be the death of Canadian blockchain whiz Gerald Cotten, the 30-year-old CEO of QuadrigaCX in India. Being the sole possessor of the cryptographic keys to the exchange wallet, He died taking 250 million Canadian dollars along with him.

Hence to avoid and manage such undesired colossal repercussions through a single-key mechanism. A Multi-Signature Wallet hit the market to reduce the dependency on one person.

What is a Multi-Sig or Multi-Signature Wallet?

A Multi-Signature Wallets (Multi-sig wallets short form) are cryptocurrency wallets that require two or more private keys to sign and complete a cryptocurrency transaction. This storage method requires multiple cryptographic signatures (a private key’s unique fingerprint access) to access the wallet

Basic Functionality of a Multi-Signature Wallet

When creating a multi-sig wallet, the cryptocurrency owners have the autonomy to define and decide how many signatures shall be in total and be used or required to initiate or complete a transaction.

The most commonly created multi-sig wallet type is a 2-of-3 multi-signature wallet, meaning out of the three signatures, only two are needed to sign and complete a transaction.

If you observe practically the functionality is pretty similar to that of bank accounts that require multiple signatories in a joint bank account. But since blockchain is not built on the mantra of trust but cryptocurrency consensus, it is impractical to cheat or for any central party to absurdly or arbitrarily seize your funds.
The 2-of-3 Multi-Signature Wallets Mechanism & Drawbacks:

How to Use Multisig Wallets as Two-Factor Authentication

A two-factor authentication model is highly common for online accounts like email or cloud storage but not so common when compared to bitcoin or crypto wallets.

How does it Work:
Every time you initiate a transaction on your computer or phone, the transaction needs to be signed off by the online service. To honour this transaction you need to enter the two-factor authentication code that needs to be signed off as per the crypto and bitcoin protocols. The two-factor authentication code can be generated on your phone or be sent to you via text messages. The Crypto & Bitcoin Protocols can also impose transactions limit or may demand different levels of authentications to complete the transactions


If the two-factor authentication code goes offline or gets DDoSed that is distributed denial of service network, your funds will remain unavailable and out of your reach till you find your paper wallet (a printed piece of paper containing keys and QR codes used to facilitate your cryptocurrency transactions).

If by chance someone gets access to your paper wallet and device then they can run through your two-factor authentication code to steal your funds.

How to Use Multi Signature Wallet for Better Security

In today’s world folks live in constant fear of their smartphones or computers getting hacked. The reasons behind it can be theft for financial gain, corporate espionage, personal vendetta, and more. Hence switching to using a 2-of-3 multi-sig wallet for cryptocurrency and bitcoin activities helps to insulate crypto and bitcoin owners with more security and shields their activities from all angles with utmost safety. 

How does it Work:
Through a multi signature wallet usage, when and every time the crypto and bitcoin owner wish to make or initiate a transaction, the crypto and bitcoin owner needs to initiate the transaction on one device like scanning the given QR code on the phone, then reviewing and confirming on another device to complete it. 

Thus, even a crypto and bitcoin owner can’t honour the transactions from start to end on one device through a multi-signature wallet. Also, the hackers fail to gain access to your crypto and bitcoin assets due to the muti-signature wallet mechanisms. In case your device gets lost or stolen, access to your crypto and bitcoin assets will be still possible through the help of a paper wallet.

In case both your devices viz phone and computer break simultaneously then you can lose all your crypto and bitcoin assets. You can only avoid this potential risk by creating backups on your digital wallets. 

How to use Multisig Wallets as an Escrow Service

A multi-sig wallet escrow service comes into play when parties have trust issues to initiate and complete the trade. For example, imagine John wants to buy goods from Nikita, but both have never met each other. Hence John is also hesitant to send money to Nikita to purchase goods, So is Nikita to ship the goods before the payment. Thus to resolve such types of issues folks, Can create a multi-signature wallet with a third-party escrow service, Emma.

How Does It Work:
In the above scenario, Emma can be the person or a company. John and Nikita both don’t need to trust Emma with their goods and money, but they need to trust and hope that Emma doesn’t collude that is work in a secret or unlawful way to gain deceive or gain advantage with either of them.

To accentuate once Nikita sends money, John can initiate the shipment of the goods. Once the goods shipped are arrived at Nikita’s address both can complete the multi-sig wallet transaction without Emma’s signature. Because in a 2-of-3 multi-signature wallet two signatures are sufficient to initiate and complete the transaction.

The role of Emma only becomes active when things don’t go well as planned. Where Emma is required to make sound judgments or split the funds in agreements with both the participants.

NOTE: Emma can’t take the funds herself, As Nikita or John either one’s signature is mandatory to honour and complete the transaction.

Third-party escrow services are instrumental where both parties have serious trust issues to initiate and complete the trade activities. However, one cannot guarantee that either or maybe both trading partners are not colluding with the escrow service professional.   

How to Secure Company Funds with Multi-Sig Wallets

A company or business trading in cryptocurrency or bitcoins can find itself in a tough spot when decisions like who should possess the key of a single wallet to handle and manage the payments and trading activities.

This issue can become serious if the key is replicated more often by several authorized signers leading to a higher probability of it getting stolen or lost.

How Does it Work:
Through a multi signature wallet, neither the company CEO nor the chief accountant can run away with the company’s funds. But the accountant still has the autonomy to prepare, sign and pass the payment to the company’s CEO, Who confirms and facilitates the transaction by adding the signature. In case of loss of the device either by the CEO or the accountant, or an unfortunate accident of either of them, they both can still get back access to the company’s funds through a paper wallet by explaining the ordeal to the board of members.

In such a scenario, the risk of the company’s CEO and accountant not colluding with each other cannot be ignored to run away with the company’s funds.