2014 is considered by some to be the year of multi-sig, and we are happy to announce that Kraken supports payments to multi-signature Bitcoin addresses (addresses beginning with a ‘3’). Multi-sig features are built right into Bitcoin at the protocol level, offering a powerful free layer of additional security to everyone. Innovations like multi-sig are the building blocks of a better global financial system.
A regular Bitcoin address is made up of two parts: a public key and a private key. Any holder of the private key can spend funds from the address. The beauty of multi-sig is that multiple private keys can be used to protect bitcoins held in a single address.
Since multi-sig addresses can be constructed to require that two out of three private keys be used to spend funds from a single address, asset holders can store their private keys in different places. One private key could be kept on a computer or smartphone, one offline in a secure physical location, and one with an online wallet provider. For extra protection, spending rules can be set up with the wallet provider that match your habits and protect against suspicious activity. Since two of three keys are required to authorize a transaction, you don’t need to trust the wallet provider. An arrangement such as this helps ensure protection from theft should any single private key be compromised. Three individuals could also agree to share a single address configured to allow spending only when authorization is given by at least two out of three parties.
These examples are just the beginning as support for multi-sig addresses grows. To learn more about multi-sig check the following resources.