Can someone explain to me exactly how multi-sig works?

I have been through the FAQ and the wiki back to front and I can't see any clear explanation of what a multi-sig marketplace is and how it works. I have tried searching and can only find posts about such and such a marketplace now supporting multi-sig, but nothing about what it actually is. I am guessing it is some sort of way of decentralising the escrow to stop marketplaces stealing all of our bitcoins but that's as much as I can gather...


Comments


[7 Points] Big_Daddy_Trucknutz:

3 keys. You've got one, the market has one and the vendor has one. 2 parties have to agree to release funds.


[6 Points] None:

Conventional bitcoin transactions are non-reversible, meaning that once a bitcoin transaction has happened, it is impossible to retrieve the funds. If Bob wants to send Alice some bitcoins in exchange for a product, then one of them has to make the first move, and trust that the other will follow through. Bob may send his bitcoins, only for Alice to keep the product. Conversely, Alice may send the product and Bob may never pay her.

But if Jen, our third party, acts as an arbiter, then she can hold the funds in escrow until both Bob and Alice confirm that they received their goods. All the parties can do this manually, but that would enable Jen to run off with the bitcoins, or for her bitcoin wallet to be compromised, leaving her responsible for Alice and Bob’s outstanding transaction.

Instead, multi-signature transactions are encoded in the protocol to make it more efficient, and secure. In BIPS 16, any number of signatures can be required to complete a transaction, but generally, people describe them as ‘two out of three’ transactions, requiring two of three digital signatures to execute.

In a multi-signature scenario, Bob would send his bitcoins to a bitcoin address that he controls jointly with Alice and Jen. If Alice and Bob both agree that the goods have arrived and the transaction is complete, then Alice can confirm Bob’s transaction, unlocking the money, and Jen’s involvement isn’t needed. But if either party disputes the transaction, they’ll end up trying to perform the opposite of each other: Bob will try to return the bitcoins to his own address, while, Alice will try to extract the bitcoins to her address. They can then call Jen in to investigate. She’ll make a decision, and then use her signature either to back Bob’s or Alice’s transaction. The neat thing about this is that Jen can’t send the coins to her own address, and no one else can steal the coins without stealing two of the three signatures involved.


[2 Points] multi_mania:

Checkout DeepDotWeb's guide on how to go about MST with various marketplaces. The bitcoin wiki explains multisig in general and the benefits thereof.


[1 Points] TylerD87:

Thanks a lot for the explanations.