Multi-signature wallets require the negotiation through more than one private key. This makes it far less likely for an attacker to access funds. At the same time, something like a 2-of-3-key scheme is flexible in not requiring all keys to sign a transaction. This is especially useful in the event a key is lost.
In a blog post, BitPay introduces the topic by simplifying some of the commonly heard jargon into layman’s terms. Bitcoin “wallets” should be imagined as regular cash wallets, where the cash is under your care only. So too with a Bitcoin wallet, where you hang onto the private keys.
“Accounts”, on the other hand, are held with third parties entrusted with your private keys. They should not be termed as wallets. It is also misleading to refer to themselves as “banks”, considering that the security of funds is often un-bank-like, as evidenced in multiple incidents.
In creating a highly secure wallet, multi-signature technology gets the best of both worlds: your funds are managed by you only (and your delegates) but are not as vulnerable as when protected through a single key. BitPay believes that this has significant implications for Bitcoin:
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“This is very important from a security perspective because a thief would need to compromise not just one machine, but 2 or more. This dramatically mitigates the risk of theft. This concept is so powerful that we believe it will virtually eliminate the problem of bitcoin theft.”
Coinbase and BitGo positioned the feature of multi-approver transactions, which can also employ 2-of-3 or 3-of-5 schemes, as separate from multi-signature technology. BitPay takes a different approach by illustrating them as bundled together: each of the multiple signatures are managed by different people.
The post also touches upon some interesting potential legal implications: who is the recognized legal owner of the bitcoins? With a “centralized” account with a 3rd party, whether in Bitcoin or fiat, the true owner is registered even if more than one party has access to sign off on transactions. But if there’s no 3rd party and multiple people have access, who’s the true owner? At least with a single-person wallet, it can be assumed the coins belong to their holder.
It should be pointed out that the notion of legally-recognized ownership becomes dubious when it comes to personal wallets, as there’s no record of title linked to the “true” owner.
Currently, the beta version CoPay service is a “power user’s tool”. The user interface has yet to be simplified for ease-of-use by everyday consumers.