Multi-signature Transactions

Multi-signature transactions on Cardano are transactions that require approval from multiple parties (or signatures) to be valid and executed. This feature ensures that a specific set of conditions is met before funds can be transferred or certain actions can be taken, adding an extra layer of security and collaboration. These transactions are useful in scenarios where trust between multiple parties is necessary, such as shared wallets, joint accounts, or decentralized governance.

How Multi-Signature Transactions Work on Cardano

In a multi-signature transaction, instead of requiring a single private key to sign and authorize a transaction, the transaction requires signatures from multiple parties. Cardano achieves this using native scripts, which specify the rules that must be followed for the transaction to be valid.

Key Elements of Multi-Signature Transactions on Cardano:

1. Multiple Signatures: A predefined number of parties (signatories) must sign the transaction for it to be executed. The number of required signatures can be set according to the desired rules.
2. Conditions for Approval: The conditions for signature requirements can vary. For example:
   • A transaction might require all parties to sign (e.g., 2 out of 2 signatures).
   • It can require any one of a group of parties to sign (e.g., 1 out of 2 signatures).
   • It can be configured for a majority or a set number of signatures (e.g., 2 out of 3 signatures).
3. Native Scripts: These transactions are defined by native scripts (written in JSON format) that contain the logic specifying the multi-signature rules. Cardano’s ledger enforces these rules directly.
4. Security and Flexibility: Multi-signature transactions provide an added layer of security because multiple approvals are required, reducing the risk of unauthorized or malicious transactions.

Use Cases for Multi-Signature Transactions:

1. Shared Wallets:
   • In a shared wallet scenario, multiple people or entities might control the wallet, and all of them need to approve a transaction before it can be processed. For example, in a business, two managers may be required to approve outgoing transactions from a company wallet.
2. Decentralized Governance:
   • In decentralized governance models, multi-signature transactions can be used to ensure that decisions are agreed upon by multiple stakeholders before they are executed.
3. Escrow Services:
   • In an escrow service, funds are held in a wallet that can only be accessed when both parties (e.g., buyer and seller) and possibly a third-party arbitrator agree to release the funds.
4. Joint Accounts:
   • For joint accounts, such as in family or business settings, transactions may need to be approved by multiple account holders to ensure that any funds spent are jointly authorized.

Example of a Multi-Signature Transaction on Cardano

Here’s an example of a 2-out-of-3 multi-signature transaction using a native script on Cardano. This script specifies that two of three parties must sign the transaction for it to be valid.

{
  "type": "all",
  "scripts": [
    {
      "type": "sig",
      "keyHash": "ed25519_pk1yqdm9czr44d0tpwyw6fg0znf0lveaxt6e0p58qxj0x3k6fdpzrlsd5vsl9" // First signer
    },
    {
      "type": "sig",
      "keyHash": "ed25519_pk1s4hdm9azczbscy0lrk9fwpxdsndaxj9zj9f2sm6lhgj34cnksyfj0lpfwy" // Second signer
    },
    {
      "type": "sig",
      "keyHash": "ed25519_pk1qwmn9czr34d0tpwyw6fg0znf1lveaxt7e0p59qxk0x4k6fdpzrlsd9vsl9" // Third signer
    }
  ]
}

Explanation:

• “type”: “all”: Specifies that all of the conditions must be met. This is used for multi-signature conditions.
• “type”: “sig”: Represents a signature condition. In this example, three public key hashes are listed, representing the three parties who can sign the transaction.
• The rule can be customized to require signatures from any subset of these keys (e.g., 2 out of 3).

How to Use Multi-Signature Transactions:

1. Create a Native Script: A native script is created using the required rules and public key hashes for the signatories.
2. Submit the Script: When creating a transaction, the script is included as part of the transaction data. Cardano’s ledger checks the script before validating the transaction.
3. Collect Signatures: The necessary signatories sign the transaction according to the conditions specified in the script.
4. Broadcast the Transaction: Once the required number of signatures is collected, the transaction is broadcast to the network and validated by the nodes.

Conclusion

Multi-signature transactions on Cardano offer enhanced security and flexibility by requiring multiple approvals before a transaction can be processed. Using native scripts, these transactions can be customized to fit various use cases, such as shared wallets, decentralized governance, or joint accounts. They play an essential role in promoting trust and transparency within decentralized systems.