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Multi-signature technology, also known as multi-sig, was developed to create an added layer of security to cryptocurrency transactions. If only a single key is required to access funds and that key is lost, stolen or hacked it is not possible for users to regain their funds.
To solve this issue, three keys are issued to the user and two of those keys are required to access funds. Just as you wouldn’t keep your spare house key or spare car key in the same place as the original key, the two remaining keys are kept in separate places.
1. The first key is kept in your wallet, on your phone or computer (i.e. online)
2. The second key should be kept in a safety deposit box or another designated safe location (i.e. offline)
3. The third key is given to a multi-sig provider (i.e. BitGo)
The multi-sig provider offers similar services as a credit card company in terms of fraud protection. The multi-sig provider analyzes the transaction, only approving transactions that appear to be legitimate. Checking to ensure your phone or computer has not been reported as stolen, the password you’ve entered is correct and the transaction has taken place near your home or places you often visit.
The most notable component of multi-sig is that the multi-sig provider does not hold or have access to your funds. They hold a single key, which can only be used to approve a transaction and must be used in combination with the key that you hold. BitGo is recognized as the first wallet to offer multi-sig services that support cryptocurrencies such as Bitcoin, BitGold, Ethereum, Ripple, Litecoin and many more!