Bitcoin Multisig: Hey, want some magic?

The concept of cryptocurrency was developed by its creators primarily as a transfer of cash into the digital environment of the Internet. But along with the transition from “physical” to “virtual” space, cryptocoins acquired many unique properties that are not available to physical money. And one of these properties is multi-signature.

The classic example that is given when describing multisig or “multi-signature” in bitcoin (and all its successors, such as litecoin) looks something like this.

We assume that two wealthy gentlemen decide to make a certain transaction. Mr. Black decided to sell his brand new, undamaged and unpainted car, hereinafter referred to as goods, to Mr. White for a measly 3 bitcoins. In general, our gentlemen do not fully trust each other, and see each other as petty swindlers. On the one hand, Mr. Black is not sure that he will receive his 3 bitcoins, but Mr. White is not sure that the goods are in proper condition, and it is, indeed, not broken, not painted and not stolen. 

Then they decide to use the services of an intermediary, Mrs. Gray. Promising her an appropriate reward if the transaction is successful. 

But the problem, instead of going away, became even deeper. After all, if Mrs. Gray, having received the money, instead of providing the services of the guarantor in full, decides to disappear with this money in an unknown direction, the transaction will not take place, and this is sad. The situation is stalemate...

But not in the case of cryptocurrencies. Features of the technical implementation of Bitcoin make it possible, if not to solve this problem, then at least to reduce it to a minimum. I will dwell on the technical part below, but for now let’s look at the organization of the process.

Gentlemen Black and White, with the assistance of Mrs. Gray, are creating a special bitcoin address with the so-called multi-signature. 

 The peculiarity of such an address is that in order to spend the funds received at it, you must provide several signatures. What is typical is not necessarily everything. For example, two out of three signatures are required.  

Thus, Mr. White transfers the said 3 bitcoins to a new multisig address. After Mr. Black transfers the goods to Mr. White, if there is no claim to the condition, our gentlemen together, without the participation of an intermediary - Mrs. Gray - can transfer funds from the address by providing two of the three specified signatures and thereby completing the transaction. Everyone is happy. 

Suppose that Mr. Black forgot to hand over the said goods to Mr. White and disappeared in an unknown direction.. Having only one of the two required signatures does not allow him to independently gain access to the funds. And Mr. White, after the specified time, together with Mrs. Gray, return the funds to Mr. White, and they no longer need Mr. Black’s signature. 

Next: even if Mr. White, having received the car, drove off into the sunset in joy, forgetting about everything, then Mr. Black, with the assistance of the same Mrs. Gray, will completely calmly complete the deal. 

And the procedure described above is not the only application of multisig technology.

For example, the funds of a certain Crypto Company are stored on a multisig address. And to spend funds, you need, for example, either the signature of the general director, or the signature of the chief accountant, or the signature of the accountant and cashier.

In total, without additional sophistication, you can create a connection of 15 signatures, in 15 combinations. In the next article I will reveal more details of the technical implementation, but for now I will note that litecoin and many cryptocurrencies based on the code and protocols of bitcoin (such as litecoin and bitcoin cash) inherited the described mechanism. 

Did you think that smart contracts were invented by Buterin for Ethereum?