What is a multi-sig transaction?

What is a multi-sig transaction?

A multi-sig transaction is a transaction that requires authorization from multiple actors, in order to be valid.In this video, shot in Key West's Mallory Squ...


What's up party people? Chris Derose here, Community Director of the Counterparty Foundation. And in today's video I'm going to answer the question, "What is a multisig address?" So I'm here today in Mallory Square in Key West, Florida. This is where a lot of the tourists come and unload off the ships. This is where there’s a lot of performers. It's roughly the southwest part of the island, I'd say, and it's definitely something you should check out if you ever come down to Florida. But yeah, let's talk about multisig addresses.

Multisig addresses were created in more recent versions of the Bitcoin protocol to enable multiple signatories to authorize spend transactions or authorize spend outputs. There's a lot of reasons people might do this, and we'll get to those in a second, but let's talk about what the transactions look like. When you create a multisig address, you choose how many people are going to have access to that address. You create the address in your Bitcoin software. You know it's a multisig address because it begins with a three. The three is actually the indication of a P2SH address, but that's a slightly different subject.

More specifically in this case, it also indicates that it's a multisig address. When you then go ahead and create that address, you say that any number of the signatories need to be signing off on a transaction in order for that transaction to be valid, so you will typically see two of three, three or four or one of two this kind of thing. It's a "N of M" designation. Once you’ve created that address, any money that's going to then be sent to that address, to that prefix address with a three in it, and that'll be in that multisig balance. At that time, money can be spent. There's a lot of wallets that'll do this, some have it built in.

I don’t know if Coinbase has it yet, but I know that BitPay has a really excellent co-pay wallet that does this, and I think they've got a couple other things maybe inside or something like that was what they were working on that will do something similar on your own. But yeah, so you would create this multisig address. It’s good for things like committees. Perhaps if you have a board of directors and some number of them need to approve transactions. This will be the accounting feature by which you ensure that, that is always the consensus case, that you have a majority vote. Maybe you do four of seven or some such thing.

It doesn't matter which four of the seven, just so long as there are four participating in that transaction. It can also be very good for security features. So perhaps you want to make sure that if perhaps you're not around anymore or you die or something that two people have the ability, if they move together, to spend money out of an account. You need some level of corroboration, or perhaps you have like an attorney or something that signs off on your transactions for you, that kind of thing. So those are some use cases for multisig addresses. There are others.

I think that in the counterparty protocol as well, we have a lot of support for multisig for these types of reasons. And so you'll see multisig becoming a more and more popular thing over time I think as a security feature. It's very useful as well for things like exchanges where maybe they have some amount of money locked up. They want multiple servers to sign off on any output for the system. That way if any one server is compromised the other one doesn't have to necessarily you don’t have a two of two transaction in that case. And the other server wouldn't necessarily have to authorize that spend.

So you have some fail safes in the system. So there's a lot of these reasons in multisig and there's a lot of these really functional use cases. But, you know, it's still a new feature, we're still trying it out. We'll see where it evolves to. I think the P2SH addresses have a lot of stuff in the pipeline coming up, and this multisig is a part of that. From a technical ‘spective, I think this really shows that the level of sophistication that Bitcoin has is growing and having overtime.

We’re keep on adding things to the protocol, and we keep on accommodating some of this stuff from either other projects or really just I think what Satoshi wanted with his own scripting language that was in Bitcoin to begin with. So yeah, that's today's video. Do you have any questions about Bitcoin? If so, leave them in the comments below. I'd love to answer your questions. And if you don't want to leave a YouTube comment, you can always tweet me. My handle is DeroseTech.

And if you liked this question, why don’t you check out the channel, maybe subscribe. I'd love to have you around. Later, party people.