Coinbooks Insights

What Is A Multi-signature (Multisig) Wallet and How Can It Be Used For Defi?

Coinbooks Team
Published on:
September 14, 2022

What is a multi-signature wallet?

Whenever you want to make a transaction on a blockchain such as sending funds, interacting with a smart contract or a decentralized-application (dapp), a message is created and submitted to the blockchain. The message is signed with the sender's private key, which verifies their identity and prevents the transaction from being altered. Once the transaction is broadcast to the network, it is verified by miners and added to the blockchain.

This is the core benefit of blockchain and digital ledger technology as it means every single transaction can be verified to have been created by someone with that specific private key. Defi (decentralized-finance) is built completely around the availability of trustless wallet-based identity-verification; for example, it means that the interest you earn on your staked assets can only be claimed by you and no one else.

However, private keys are like passwords, which means they can become lost or worse stolen by criminals. Once someone has access to your private key, they can use it to impersonate you on the blockchain by submitting transactions signed on your behalf. This means they have access to all of your funds and can steal all of your digital assets.

This is why it's extremely important to never share your private key (or recovery phrase) with anyone. This also extends to not connecting your web 3.0 wallets (such as Metamask, Trustwallet or Coinbase Wallet) to any third-party sites that you don't completely trust.

So if the fate of all of my digital assets rely on one private key, what are my options for security?

This is where a multi-signature (or multisig) wallet can be vital for any business that deals with crypto. A multisig wallet is a wallet that uses multiple-signature technology to protect your digital assets. It requires two or more people to sign every transaction in order to prevent theft or loss of your crypto. People that are required to sign for a transaction are called co-payers and either all of them or some of them are required to sign a transaction before funds can be moved.

For example, a 2-4 multisig wallet is a wallet used by 4 co-payers that requires at least 2 of the co-payers’ signatures to sign a transaction.

The benefit of a multisig wallet is that your funds are considerably more secure compared to just having a wallet with one private key. This is because for your funds to be compromised with a multisig, multiple co-signers would have to have their wallets compromised - this becomes unlikely if you have more than 2 co-signers.

How do multisigs work under the hood? Am I trusting a company with my digital assets?

Multisigs such as Gnosis Safe use a smart contract running on a number of blockchains to handle the logic behind multi-signature approvals. These smart contracts can then require a minimum number of approvals from business stakeholders before a transaction is sent. This gives the security benefits mentioned previously, but also prevents a rogue or careless employee from jeopardizing your digital assets.

Another benefit of the multisig being implemented as a smart contract is that you still keep complete self-custody over your funds. This means there is no secondary risk of entrusting a company or institution with your crypto that could potentially go bankrupt or be hacked. This is a completely trustless solution to digital asset security.

See below the comparison between storage solutions:

Digital asset storage comparison (source: Gnosis Safe)

How to get started with Gnosis Safe

For this tutorial we will be demonstrating how to set up a multisig wallet on Gnosis Safe. Gnosis is one of the most popular and trusted multi-signature wallets supporting chains such as Ethereum, Avalanche, Polygon and Binance Smart Chain.

Step 1: Visit Gnosis’ Web App

To get started, visit Gnosis’ web app here: or by searching in Google. Always ensure the domain matches the official Gnosis Safe url.

Step 2: Click ‘Create Safe’ and connect wallet

Create your first Safe by clicking ‘Create new Safe’ and connecting your web 3 wallet.

Click 'Create new Safe' to start create flow

Connect your web 3 wallet such as Metamask

Step 3: Name Safe

Name your new Safe

Step 4: Add owners and confirmations

The next step is to decide who you want to add as co-signers and how many signatures are required to confirm a transaction. Always double check the addresses you are adding and ensure they’re on the same network as the safe you’re creating.

Add any co-signers and decide on the required number of confirmation signatures to make a transaction

Step 5: Create safe

This step allows you to double check the signers you have added. If it all looks correct, click create and you will be prompted to pay for the multisigs’ creation. The gas cost of creating the Safe depends on multiple factors such as how many co-payers you have added. You can see in the photo below the creation of this safe (with only one address as an owner) would cost 0.00889 ETH.

Finish creating your Safe

Step 6: Make a transaction

The final few steps are to test your newly created Multisig by making a transaction. Click the ‘New Transaction’ button on the left hand side of the app. From there you can click to ‘Send funds’ (transfer your digital assets).

Click 'New Transaction'

Step 7: Choose recipient and create transaction

Finally, you can choose the recipient and the amount you want to transfer and then you can submit the transaction. After submitting the transaction, depending on your signer policies, the transaction may be submitted right away or will require signatures from the other co-signers of the Safe account.

Submit transaction for approval

How Coinbooks can make defi accounting simple

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If you would like to learn more, please Book a Demo to discover how Coinbooks can save you hours on your business' crypto accounting.

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