Multisig Is Actually Very Powerful But Underused In Crypto
Have you ever heard of multisig? Multisig is short for multi-signature. It’s one of the most powerful features of the blockchain space but is rarely promoted among the casual crypto community. It’s very powerful because it significantly reduces the need for trust. In a trustless environment like the blockchain, having full control of your own private keys to manage a joint account is actually something that’s revolutionary. Let me explain.
How Does A Multisig Work?
Let’s use an example to get a better explanation. Let’s say there are three people called Ben, John, and Mark. These gentlemen form a cryptocurrency team and raise funds through initial coin offering (ICO). Now, they have 1,000 ETH together due to people buying their coins. While Ben, John, and Mark trust each other, they understand that nobody should have single control over the entire funds.
Because of this reason, John, Ben, and Mark decide to create a multisig account where one joint account is controlled by their wallet addresses. So, for every multisig outgoing transaction, John, Ben, and Mark need to approve the transaction from their own private wallet addresses. John does not have access to Ben and Mark’s wallet addresses’ private keys, but John cannot go rogue without Ben and Mark’s approval for every outgoing transaction. There’s check and balance in every multisig transaction.
This multisig concept is very powerful and every transaction is also confirmed by the blockchain. There’s no central authority that can reverse the transaction. Everybody knows once his private wallet address is added to the multisig, he will always have that right to vote for approval or rejection, except if he’s removed by the majority of “shareholders” inside the same multisig.
Now imagine if there are way more people than John, Ben, and Mark. Let’s say there are ten wallet addresses linked to one multisig and every outgoing transaction requires at least six approval. Everybody would feel important, and it significantly reduces suspicion among team members.
A Powerful Concept But Rarely Understood By The Public
Multisig is commonly used by a cryptocurrency team or crypto exchanges for risk management reasons. However, the public (especially casual users) rarely use it even though most people understand the concept of joint account. Most people are not even aware they are able to create joint account among them and their friends.
The thing about not understanding it is because the problem of trust often happens among business partners and clients. Take an example of the supply chain industry. There is a lot of distrust among third party distributors. Now imagine if they all create a “joint account” in the blockchain through multisig where all payments are shared with stablecoins (to guard themselves against crypto price fluctuation). This can be a powerful concept as long as the stablecoins can be redeemed easily.
Of course, there are different problems that can easily occur if we are talking about micropayments, such as gas fees, the inability to instantly redeem the tokens to fiat, and other problems. However, these issues will be able to be fixed in the future. The point remains the same, the concept of multisig in a decentralized environment like the blockchain can eliminate the problem of trust among business clients, especially if they are from different countries where the regulation is often very grey and vague.
The Future Of Multisig
Sadly, not all blockchains have the same capabilities of multisig. While Ethereum’s multisig is very flexible (i.e., look at Gnosis), other ecosystems might not work perfectly. For example, Tron’s multisig is still very limited as of now, with only five wallet addresses controlling one joint account. Not only that, it’s not always possible to check pending signature approval in Tronscan, where such issue doesn’t exist in Ethereum’s multisig.
The future of multisig remains very strong, especially if we have more improvements from cross-chain interoperability. Imagine the scenario where you can have multisig involving different wallet addresses from different blockchains. That will be amazing. If more and more businesses adopt the power of multisig, it can transform a lot of conventional business practices.
The homework of the blockchain industry is to solve the usual gas fee problems and the speed of redeeming tokens to fiat.