0. A Brief Introduction to Multisignature Technology
Generally speaking, one Bitcoin address corresponds to one private key, and to spend the funds in that address, the holder of the private key must initiate a signature. Multisignature technology, simply put, means that multiple private-key signatures are required for a transaction to be valid. For example, a certain sum of funds corresponds to 3 private keys, and at least any 2 of them must participate in the signing process for the funds to be spent; if only 1 private key signs, it is invalid. This 2/3 arrangement can be extended to any m/n, such as 3/3, 1/5, 6/11, and so on, of course with m less than or equal to n.
Since this is a contest entry（http://www.coineve.com/index.php/hyl-multisig/ ）, I won’t spend much time explaining the basic concepts and principles of this technology. Below, I’ll give a few application scenarios in which multisignature technology may come into play:
1. Escrow
This is precisely the model that BiXuwang is now trying out. Simply put, it is the Alipay model. The customer pays first, and only then does the merchant ship the goods, but after payment the merchant does not receive the money directly; instead, one must wait until the transaction is completed before it can be confirmed. After the customer has paid, the money is no longer under the customer’s control, but it is not yet under the merchant’s control either. If a dispute arises during the transaction, the intermediary can arbitrate and return the funds to the customer.
What I’ve just described is exactly the same as the Alipay model we are familiar with, but where does Bitcoin multisignature add extra significance? It lies in this: during the period when the money has left the customer’s control but has not yet come under the merchant’s control, it likewise cannot be controlled by the intermediary platform. In other words, the intermediary platform cannot freely spend this money, much less abscond with it.
Compared with Alipay, Bitcoin escrow transactions restrict the intermediary’s ability to do evil. For example, during the transaction, the intermediary takes the temporarily “frozen” funds to gamble with them (or, one might say, to invest them), and then loses everything; in that case, the merchant receives nothing. Or else the intermediary reneges, or, according to some “regulations,” confiscates the funds; then the merchant has to go to great lengths to collect the debt from the intermediary. For instance, Taobao could quite possibly use the excuse that Bitcoin is illegal to confiscate a transaction already agreed upon by both sides, leaving the seller with no avenue for complaint and the buyer equally helpless (it seems this kind of thing has already happened).
In short, in the traditional Alipay model, the introduction of an intermediary on the one hand adds some elements that make transactions more reliable, but on the other hand it introduces new unstable factors. That is to say, on the one hand you no longer need such a high degree of trust in your counterparty, but on the other hand you additionally need to trust unconditionally the intermediary platform’s fairness and reliability.
With multisignature support, however, if, for example, the customer, the merchant, and the intermediary form a “2/3,” then this means that the intermediary’s participation brings only positive value to reliability and adds absolutely no new uncertainty whatsoever. In other words, if a transaction between two people could originally succeed, then it will certainly still succeed after an intermediary is added. As long as the customer and the merchant’s two private keys confirm the transaction, the transaction is complete, and whether the intermediary keeps faith has no effect at all. Only when the customer and the merchant disagree does the intermediary gain authority.
By changing the numbers in m/n and the weighting of private-key distribution, one can also design all kinds of more complex intermediary models. For example, one could introduce 3 guarantors at the same time, and when the two sides of a transaction disagree, it would take 2 of the 3 guarantors to render a judgment, and so on.
2. Online Wallets
There are already many examples of multisignature online wallets. For example, one private key is held locally, while the website holds another private key; only when both keys sign at the same time can the balance be spent. Such an online wallet is of course somewhat more troublesome than a normal wallet, but it is relatively more secure. In addition to ensuring that the website cannot arbitrarily misappropriate customer funds, it also ensures that funds cannot be stolen whether the website is hacked or the customer’s computer is hacked, unless both sides are breached simultaneously by the same hacker.
The significance of this kind of online wallet is mainly the double layer of security, but it can also be extended into more services, such as an online wallet shared by multiple users.
3. Joint Property / Partnership Operations
Multi-person shared wallets of course also have all kinds of m/n patterns, and there are many application scenarios. Let’s first talk about the 1/2 model. That is to say, one wallet corresponds to 2 private keys, and either one can spend the funds in it.
You may ask: isn’t this unnecessary? Wouldn’t it be enough to let two people hold the same private key? What is the point of an 1/n model? The most basic difference between 1/2 and 1/1 lies in this: clear accounting. In other words, although both people have the same authority to spend the same funds, it is impossible to fake who specifically authorized each expenditure. That is to say, you and I both have the right to spend these funds, but I have no right to impersonate you in order to spend them.
Simple application examples include marital joint property and partnership operations. Under normal circumstances, a husband and wife, or two close buddies, do not distinguish between one another and jointly manage the funds. If one party encounters some mishap or accident, the total assets can still be put to use in time. And once a disagreement or dispute arises and one has to look back and settle accounts, the books are again clear and distinct; which money was misused by whom will be impossible to deny.
4. Supervisory Management / Share Weights
By further extending the 1/n model of partnership operations to m/n, one can realize a more complex funds-management system. For example, within a company, when funds are to be spent, the finance department initiates the payment first, and the director reviews and signs it; when the director wants to spend funds, finance must also confirm it. In this way, it becomes impossible for anyone to abscond with the money and flee.
In addition, depending on how the private keys are distributed, multisignature can support some simple weighting mechanisms. For example, four people start a business together, the boss holds 40%, and the three underlings each hold 20%; then one can design a 3/5 model, in which the boss controls 2 private keys and each underling controls 1. In that case, the boss’s decisions only need to win the endorsement of 1 underling to get started, but the 3 underlings together can also overturn the boss. Mechanisms like this of course are not suitable for supporting a fully developed stock form, but for a startup or a particular small project, they are a convenient and reliable implementation method.
5. Digital Inheritance
Finally, let me mention the application of digital inheritance. While an elderly person is still alive, of course they would hope to exercise full control over their own property. If the password is handed over to descendants too early, perhaps an unworthy son will take it to gamble and lose everything in one night. Yet if the password is not transferred in time before death, then this digital property may be carried into the coffin. Many digital assets have similar problems, but Bitcoin provides a solution.
The simplest scenario is, for example, a 2/2 model: the elder holds both private keys, and gives one private key to the son while the other is given to a notary institution or notary. After the elder dies, if the keys were not personally transferred in time, the heir can apply for the notary to transfer the inheritance. Before that, unless the son and the notary collude, neither party alone can spend the money.
Conclusion
The scenarios outlined above are all relatively rough and simple; in actual practice there will of course be more flexible and richer forms. In all scenarios, the significance of multisignature is still nothing more than the significance of Bitcoin itself: freedom, transparency, decentralization. By imposing limits on the abuse of power, multisignature technology makes rights and responsibilities more clearly defined, allowing everyone to control, and precisely control, the power he ought to control.
Translated from the Chinese original with AI assistance. The original text is authoritative.
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