Multisig and monosig: a quick rundown
When you send bitcoin, you aren’t really moving it between addresses. The bitcoin is essentially stored in a digital vault where it stays regardless of the owner. What you’re actually doing is changing the locks to fit the recipient(s)’s key rather than your own.
Cryptocurrency wallets will either require one or several signatures (or ‘keys’, as in the example above) to gain access and sign and send a cryptocurrency transaction. If several signatures are required, it’s known as a multisignature (multisig) wallet. If it’s one signature, it’s known as a monosignature (monosig) wallet.
Standard transactions on the bitcoin network require just one signature. Multisig wallets will be used for a joint account between two or more people. They’re used in situations where control of what happens to the bitcoin will be shared between several parties and decisions related to it must be agreed upon. They also help to improve the security of high-value wallets. A cryptocurrency exchange, such as Luno, may store numerous private keys in various vaults for optimal security.
Multisig transactions can either require one of two signatures, or two of two, three of five, or other combinations. A 7-of-7 multisig wallet would be extremely secure but on the flipside, the more signatures required, the more cumbersome the wallet and transactions become.
Bitcoin’s upcoming Taproot upgrade will address certain issues with multisig transactions. One of the main changes to the network is the replacement of Bitcoin’s current elliptic curve digital signature algorithm (ECDSA) with Schnorr signatures.
The ECDSA derives public keys from randomly generated private keys, and makes it impossible to figure out a private key from a Bitcoin address or public key. It has its drawbacks, though, especially with multisig transactions, where issues with efficiency and privacy continue to affect the network. For example, multisig transactions on the ECDSA algorithm are discernible from normal monosig transactions, possibly drawing unwanted attention to these transactions.
With the Taproot upgrade, these multisig transactions and their corresponding keys can be combined into one key, making them indistinguishable from regular monosig transactions.