Welcome once again to another wonderful episode in the crypto Academy community. Before I present my homework post, I would like to acknowledge the professors and the crypto Academy community for making such an educative lecture possible. Today's Topic is something technical Multisig Wallet(Electrum)-- "m of n" Combinations.
Without wasting enough time, I would present my homework post systematically based on the questions from the professor @sapwood.
What is a Multi-sig wallet? How is it different from a Single key wallet? What are the different uses of a Multisig wallet?
Multi-sig Wallets
In the crypto world, transactions of any sort require a wallet which would serve a medium of exchange between both the senders and the receivers. Multisig wallet is the short form of multi-signature wallet. The Multisig wallet is a type of crypto wallet that needs two or more private keys to complete or sign transactions. Usually with the Multisig wallets, the transactions cannot be completed by one person or an individual since it requires more than one signature from different private keys perhaps from different owners as well.
The Multisig wallets uses the m and n Combinations to signify the number of cosigners who needs to agree before the transaction.
m stands for the number of signatures required for authorization.
n means to the number of cosigners of the wallet.
Let assume a combination of 5 of 7. This means that 5 out of the 7 cosigners must agree on the transaction before it could be broadcasted. This means there are 7 cosigners to the wallet but a transaction would require approval from only 5 of the cosigners.
Differences between Multisig and Single key wallets
| Single key wallets | Multi-sig Wallets |
|---|---|
| It Requires only one private key to complete transactions. | Requires more than one private keys or multiple private keys to complete transactions. |
| Controlled and managed by one individual. | Either single or multiple owners. |
| Since only one key is required, is attracts hackers to attempt hacking. | The wallet involves multiple private keys which makes it very different to hack. (more secured). |
| Decision makings and transactions are very quick since its managed my an individual. | Sometimes it delays transactions when it requires more than one person to complete the transaction. |
Uses of the Multi-sig Wallets
High Security Purposes: One of the major reason why people uses the Multi-sig wallet is for security purposes. The Multi-sig Wallets uses more than one private key to complete any transaction which makes it more secured. Looking at the private keys, although we initially stated that the single key wallet is prone to hack, it doesn't mean it could be easily hacked. Hacking just one private key it close to impossible let alone multiple private keys.
Equality and balanced decision makings: In my opinion, the Multi-sig Wallets is very useful in making balanced decisions. Assume that a company has 5 joint owners who wants to spend some money. Since the operation would require the majority to complete the transaction (3 of 5), the operation is said to be balanced. Therefore a single joint owner can't make any transaction without at least 2 of the others.
Escrow: The Multi-sig Wallets helps in tradings. When a third parry is involved in the trading, a 2 of 3 Multisig wallet could come in handy. Here, both the sender and receiver would hold two of the keys and the third party would hold one as well. The third party holding the third key is known as the Escrow.
The Escrow comes in whenever there's any misunderstanding between the buyer and seller. The third would use his key together with either of them who he thinks is right to complete the transaction.
Download, install & set up a 2-of-3 BTC Multisig wallet(Electrum)? What is the difference between Seed key and MPK? Would you share the seed key or MPK with your co-signer and Why? (Screenshots Needed)
Steps involved to download and install Multisig wallet (Electrum)
Step 1
- Click the the Electrum link
- click windows installer
Step 2
- install the app
Step 3
- open the app and choose the location of the file name and click next
- click Multi-signature wallet and click next.
Step 4
- change the number of cosigners to 3 and click next
Step 5
- click on create a need seed and click next
Step 4
- copy the 12 numbers and confirm to proceed to the private public key.
Step 5
- copy the master public key and save or scan the Qrcode.
After the following process, You would realise you need two additional Private public keys. Hence you need to go through the process again to generate the two other keys.
Step 6
- click on enter cosigner key to add the second adress.
Step 7
- add the second adress and click Next
Step 8
- click on Enter cosigner key to add third adress.
Step 9
- paste the adress and click Next
Final step
- create a new password and confirm to open the Multi-signature wallet
These are the steps involved in downloading and installing the Electrum Using the windows on a computer
Difference Between seed key and Master public key
The Seed key refers to the 12 random words given to the owner creating the wallet at the initial stage. In the Multi-sig Wallets, the seed key is used to generate the master public key. The seed key can also be used to recover the funds in the wallet and also import the wallet to another device. The seed key works like the phrase words and recovery words in other wallets. The seed key can be used to regenerate the master public key when it lost.
While the Master public key is the long cumbersome combinations of words and letters which is used to perform transactions in the Multisig wallets. The master public in the Electrum refers to the private addresses or the keys used by the cosigners to complete the transactions.
would you share your seed keys and Master key
The seed key of ones account should be kept private and not shared with the cosigners. As I stated earlier, the seed key can be used to generate the master key and hence should be kept private. All the cosigners should have thier individual seed key which should be kept private from one another.
However, the Master key should be shared among the cosigners of the wallet. The master keys shouldn't be kept by an individual.
(3) How many different "m of n combinations" Multisig wallet you can construct in Electrum? How do you Export your Seed & Private Key(Electrum) in a Multi-sig wallet? (Screenshots needed)
Considering the number of different Combinations, a lot of pair Combinations can generated from the Electrum Multisig wallet.
| m &n | various possibilities m of n | total |
|---|---|---|
| m=1 to 2, n=2 | 1 of 2, 2 of 2 | 2 |
| m=1 to 3, n=3 | 1 of 3, 2 of 3, 3 of 3 | 3 |
| m=1 to 4, n=4 | 1 of 4, 2 of 4, 3 of4, 4 of 4 | 4 |
| m=1 to 5, n=5 | 1 of 5, 2 of 5, 3 of 5, 4 of 5, 5 of 5 | 5 |
| m=1 to 6, n=6 | 1 of 6, 2 of 6, 3 of 6, 4 of 6 to 6 of 6 | 6 |
| m=1 to 7, n=7 | 1 of 7, 2 of 7, 3 of 7, 4 of 7 to 7 of 7 | 7 |
| m=1 to 8, n=8 | 1 of 8, 2 of 8, 3 of 8, 4 of 8 to 8 of 8 | 8 |
| m=1 to 9, n=9 | 1 of 9, 2 of 9, 3 of 9, 4 of 9 to 9 of 9 | 9 |
| m=1 to 10, n=10 | 1 of 10, 2 of 10, 3 of 10, 4 of 10 to 10 of 10 | 10 |
| m=1 to 11, n=11 | 1 of 11, 2 of 11, 3 of 11, 4 of 11 to 11 of 11 | 11 |
| m=1 to 12, n=12 | 1 of 12, 2 of 12, 3 of 12, 4 of 12 to 12 of 12 | 12 |
| m=1 to 13, n=13 | 1 of 13, 2 of 13, 3 of 13, 4 of 13 to 13 of 13 | 13 |
| m=1 to 14, n=14 | 1 of 14, 2 of 14, 3 of 14, 4 of 14 to 14 of 14 | 14 |
| m=1 to 15, n=15 | 1 of 15, 2 of 15, 3 of 15, 4 of 15 to 15 of 15 | 15 |
| Total combinations >> 119 |
How to export your seed and private key.
Steps
- open the wallet and click wallet at the top
- click on private key from the drop down
- click export and type your password
- private keys would be displayed for you to export.
- click export to export your keys.
4. Perform a real transaction(Send BTC) to another Address using a 2 of 3 Multisig wallet? (You can perform a micro-transaction for this Task, also send a partial amount to demonstrate your experience with Change Address, screenshots needed).
I logged in on the app on my android device to perform the transaction.
Step involved to send btc from the electrum
- login to the Multi-sig wallet
- After my deposit in the wallet , go to send
- enter the recipient adress and the amount to be transferred
- click pay to continue transaction
- click ok from the next popup to complete transaction.
- confirm from at least two of the cosigners
(5) What is the difference between Receiving Address & Change Address? Demonstrate your experience with a Change Address
The Receiving and Change Addresses are represented by green and yellow colours respectively.
Receiving Address: As the name implies, the receiving address is basically generated to recieve funds in the Multi-sig Wallets. When anyone wants to deposit money into the wallet, the recieving adress would be used to recieve the transaction into the wallet.
Change Address : The change address is generated automatically in the wallet with no specific purposes. However the change adress keeps the remaining balance after transactions.
From my transaction, I transferred all the btc I have so I was left with nothing to keep in my change adress.
Conclusion
To conclude, I would say the Multi-sig Wallets has more advantages over the single wallet. The Multisig wallet has better security which make it more reliable and secured to keep one's funds. Before the lecture I had no knowledge there are such wallets which requires more than just one adress to complete any transaction. Thanks to @sapwood for such an important lecture.