Pros and cons of single and multisignature wallets

Cryptocurrency wallets are essential tools for managing and securing digital assets. They enable users to store and transfer cryptocurrencies or other tokens and to interact with the blockchain. One way to compare different types of crypto wallets is by the number of signatures required to authorize a transaction.

Single-signature

A single-signature (singlesig) wallet requires just one private key to authorize a transaction. This is the most common and straightforward model, typically used in many software (e.g. MetaMask, Phantom) and hardware wallets (e.g. Trezor, Ledger).

While the setup is very simple and easy to use, singlesig present a single point of failure - if someone gains access to your key, they can take over the entire walet and operate on the blockchain with it. Similarly, if you lose access to the key, you lose access to the wallet, with no options for recovery.

Still, singesig wallets can be a great option if you’re the sole user and want minimal overhead. To mitigate risks, it’s recommended to take additional precautions such as using a hardware wallet, storing only a limited amount of funds, or including the wallet in a multisig setup as a backup.

Multi-signature

Multi-signature (multisig) wallets, on the other hand, require multiple private keys to approve a transaction. These are typically described in an M-of-N format, meaning that M out of N designated keys must sign a transaction for it to be valid.

This more complex setup addresses the key vulnerability of singlesig wallets - no single compromised key can authorize a transaction on its own. By distributing authority among multiple keys, multisigs reduce the risk of compromise and add resilience against accidental or malicious transactions, as multiple approvals are required.

Although multisigs offer significant security benefits, their effectivness depends on the behavior of its respective owners. Each owner should treat the multisig wallet with the same caution as their own singlesig wallet - reviewing all action carefully and operating securely. A well-design multisig setup can help mitiggate risks and streamline operations, making it a valuable tool in secure wallet management.