What is a multisig wallet, and what does 2-of-3 mean?

One key, one point of failure

An ordinary account is controlled by a single private key.³ Whoever gets that key gets complete control of the account.³ Safe's documentation calls the key "a single point of failure" between you and losing your funds.³

ethereum.org names both ways this goes wrong. Lost keys cannot be recovered, and stolen keys give thieves instant access to all the funds.⁴

Several keys, a set number to approve

A multisig, short for multi-signature, needs several valid signatures before it will carry out a transaction. On Ethereum, it is a smart contract account.¹ It has a group of possible signers. It also has a set number of signatures it needs, which is never more than the size of the group.¹

So "2-of-3" means three keys can sign, and any two signatures are enough.¹ The number of signatures needed is called the threshold.⁵

ethereum.org says 3-of-5 and 4-of-7 are commonly used.¹ In a 4-of-7, four of the seven possible signers must sign.¹

Two problems, one design

A multisig guards against two different problems.^1,6

• Theft. With a threshold above 1, an attacker who gets hold of one key still cannot move funds.⁶
• Loss. With a threshold below the number of signers, one lost key does not lock everyone out. The others can still sign, and can replace the lost signer.⁶

ethereum.org gives an example. In a 4-of-7, the funds can still be reached even if three signatures are lost.¹ A multisig also splits responsibility for the keys between several people.¹

An old idea

The idea goes back at least to 2011. That year, a Bitcoin proposal called BIP-11 made "M-of-N" transactions a standard type.² Its aim was to enable safer wallets, escrow and other uses where spending needs more than one signature.² It only covered groups of up to three keys.²

Its author gave two examples.²

• A 2-of-2 wallet. One signature comes from the owner's computer. The other comes from a protection service, which can check with the owner before it signs.²
• A 2-of-3 escrow. A buyer, a seller and a trusted agent each hold a key. If the buyer and seller disagree, the agent works with one of them to decide where the coins go.²

Who holds the keys matters

ethereum.org lists multisigs as a way to avoid single points of failure for contracts holding large amounts.¹ It also says they make it harder for an attacker, or a rogue insider, to misuse sensitive functions.⁷