Imagine managing a million-dollar investment fund stored in a cryptocurrency wallet. Everything runs smoothly until a single mistake—clicking a phishing link, visiting a malicious website, or falling victim to an undiscovered exploit—allows hackers to drain the wallet. Just like that, the assets are gone forever.
This nightmare scenario has played out in several high-profile crypto thefts, including the Japan-based exchange Coincheck in 2018, the Ronin Network in 2022, and most recently, the Bybit exchange in February 2025. While the causes of these breaches varied—ranging from private key compromises to smart contract exploits—they all underscore the importance of multiple security layers in Web3.
One of these protections is the so-called “multi-sig wallet,” which requires more than one person’s signature, via their private key, to authorize a crypto transaction.
A cryptocurrency wallet lets users store, send, and receive crypto by managing their private and public keys. When making a transaction, the user, via the wallet, signs it with a private key, proving ownership before broadcasting it to the blockchain for validation. Wallets can be custodial (managed by a third party such as Coinbase) or non-custodial (fully controlled by the user) and come in software or hardware forms.
What is a multi-sig wallet?
A multi-sig wallet works the same way as a regular crypto wallet, but requires multiple users’ private keys to approve a transaction, adding an extra layer of security. For example, a “2-of-3” setup requires two out of three key holders to sign off. This makes multi-sig wallets ideal for businesses, online communities, and shared accounts, reducing unauthorized transactions.
Think of a high-security bank vault or a missile silo that requires multiple keyholders to turn their keys at the same time. Multi-sig wallets work similarly, preventing any single person from moving funds unilaterally.
“A multi-sig wallet requires multiple parties to approve any transaction that moves assets,” Dan Hughes, founder of blockchain UX developer Radix, told Decrypt. “A common setup is ‘3 of 5,’ meaning five parties are authorized to sign, but at least three must approve for the transaction to be accepted into the network.”
While single-key wallets are typically used by individuals, businesses, decentralized autonomous organizations, and exchanges favor multi-sig wallets to ensure shared control over funds.
Cryptocurrency wallets that support multi-sig include:
Multi-sig wallets are becoming increasingly popular. In 2024, Safe managed over $100 billion in assets with 1.6 million monthly active users. BitGo reported processing over 8% of all global Bitcoin transactions by value and with over 1,500 institutional clients in over 50 countries. Meanwhile, the Solana-based Cashmere wallet claimed $100 million in total value locked.
Use cases of multi-sig wallets
💼 Business Security: A company can distribute keys among executives to prevent any single person from moving funds.
🤝 Escrow Services: A 2-of-3 multi-signature setup can include a buyer, seller, and a neutral third party (escrow). If the buyer and seller agree, the transaction proceeds; if not, the third party intervenes.
👥 Personal Backup: An individual can keep one key on their phone, another in a hardware wallet, and a third with a trusted friend. Losing one key does not result in total loss.
How multi-sig wallets work
Multi-signature wallets require multiple approvals before executing a transaction. Here’s how they work:
When a multi-sig wallet is created, multiple private keys are generated and distributed among different individuals or devices.
A user submits a request to initiate a transaction, but it is not immediately recorded on a blockchain.
The transaction remains pending until the required number of keyholders approve it. For example, in a 2-of-3 setup, at least two keyholders must sign off.
Once the necessary approvals are collected, the transaction is finalized and broadcast to the blockchain to be validated, confirmed, and permanently recorded.
Benefits of multi-sig wallets
🛡️ Increased security by requiring multiple transaction approvals.
💰 Protection against theft — funds remain inaccessible without additional approvals if one key is compromised.
👾 Prevent scams and fraud by ensuring no single party can unilaterally drain the wallet.
🗝️ Redundancy protection — if one key is lost, access remains possible with the remaining authorized keys.
Multi-sigs provide not only security, but redundancy protection too, Hughes explained. “If one of the five should lose their key, the funds can still be accessed as there are still four keys remaining, of which three are required,” he said, adding that, “Without multi-sig, if you lost that key, your assets would also be essentially “lost” unless you had another form of access such as seed phrase recovery to reconstruct the key.”
Potential risks of multi-sig wallets
While multi-sig wallets significantly improve security, they also pose challenges, said Sean Li, co-founder and CEO of cryptocurrency wallet developer Magic Labs.
“More complex multi-sig wallets introduce a broader attack surface, mainly due to increased code complexity, coordination logic vulnerabilities, and the potential for bugs within smart contracts,” Li told Decrypt. “As more sophisticated mechanisms are added, like spending limits or time locks, the risk of vulnerabilities increases. To mitigate this, the industry should lean into rigorous smart contract audits and formal verification processes.”
Despite their security advantages, multi-sig wallets may not be the default choice for most cryptocurrency users.
“There’s a reason your average cryptocurrency wallet isn’t a multi-sig wallet,” Henry Fisher, Marketing Manager at Cake Wallet, told Decrypt. “More keys mean more steps and added complexity at every stage, from wallet creation to signing transactions and backing up keys.”
Fisher said developers can mitigate against these issues by educating users, creating more user-friendly interfaces, and promoting best practices.
“It’s not uncommon to see individuals lose their money by not backing up their keys or sharing their key unintentionally,” he said. “With multi-sig wallets, this care must be carried out across numerous keys.”
Who uses multi-sig wallets?
🏢 Businesses handling crypto payments or payroll can use multi-sig wallets to prevent unauthorized transfers and internal fraud.
🐋 Large cryptocurrency holders can reduce theft and phishing risks by distributing signing authority.
🌐 DAOs benefit from multi-sig by enabling transparent, collective decision-making for treasury management and governance.
The future of cryptocurrency wallets
Multi-sig wallets provide a crucial layer of protection for cryptocurrency treasuries by reducing the risks of theft from a single key compromise. However, the complexity of setting up a multi-sig wallet means it is not always the go-to choice for everyday users.
Looking ahead, innovations in smart contract technology, threshold signatures—which allow multiple parties to collectively sign transactions without revealing individual private keys—and account abstraction, which simplifies user interactions by enabling flexible access controls, could make multi-sig wallets more accessible, leading to the development of so-called “smart wallets.”
“Smart wallets are the Swiss Army knives of crypto storage,” Gnosis co-founder and Safe Wallet developer Friederike Ernst told Decrypt, explaining that, “They support multiple signers, allowing credential rotation if lost or stolen,” She added that, “Recovery is customizable—you can use a bank for KYC verification or a committee of trusted friends.”
According to Ernst, smart wallets are the next evolution of cryptocurrency wallets. They enhance security, usability, and resilience through smart contracts and programmable logic. While multi-signatures improve security, smart wallets offer customizable recovery options, and role-based access.
As developers refine user experience and security features, multi-sig and other advanced wallet solutions will give fund managers the tools they need to ensure digital assets remain safe in an increasingly dangerous online world.
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Source: https://decrypt.co/resources/what-is-a-multi-sig-wallet-a-beginners-guide
