Multi-signature offers the best protection for Bitcoin wallets, but why is its usage rate only 11%?

Experts say multi-signature schemes are the best protection against malware that could collect valuable information, such as the private keys to a user's bitcoin wallet, without the user's knowledge.

However, according to P2SH.info — which tracks the amount of Bitcoin held by Pay To Script Hash addresses, most of which are multisig addresses — only 11% of all Bitcoin addresses use multisig.

Although Bitcoin wallet experts from FreeWallet and Bitmain believe that malware attacks can occur if they compromise the device where the wallet is installed and used, they both believe that multi-signature is still the best protection.

Alejandro De la Torre from Bitmain said:

“If a Bitcoin wallet uses a 2-3 multi-signature setup, then the user is safe because the device only holds one key. Without the other keys, an attacker has no chance of spending the Bitcoins.”

He believes that important information can definitely be collected from devices without the user's knowledge.

“Wallet providers must use the security provided by multi-sig. Otherwise, users are at serious risk.”

No problem for the mass market

However, Freewallet’s Alvin Hagg told Cointelegraph:

“We don’t expect this to lead to Bitcoin fraud. Bitcoin usage levels are still low relative to the mass market. So the likelihood of someone collecting data on thousands of people and then trying to gain access to Bitcoin wallets is quite low. However, security is a key concern for wallet providers. We are constantly analyzing all forms of hacking. As for losing Bitcoins due to data breaches, Freewallet users are not at risk because we do not store sensitive information on user devices. Most of your funds are stored offline in multi-signature protected vaults. However, if you store your private keys on your phone, then of course you need to be prepared for the possibility of losing your funds.”

According to P2SH.info, approximately 1.7 million bitcoin addresses — 11.15% of all bitcoin addresses in existence — use pay-to-script-hash.

While multi-signature wallets may not be the best option for all Bitcoin users, multi-signature wallets offer better security by allowing two people to complete a third-party payment — one person generating the transaction and the second person authorizing the payment.

It also allows individual users to implement 'two-factor authentication (2FA)' - one key on the user's computer and another on their smartphone. In this case, bitcoins can only be spent if the keys on both devices are held.

Coinbase, GreenAddress (recently acquired by Blockstream), Electrum, and other exchanges have adopted multisig. Others include Bitgo, CoPay, Armory, Blocktrail, Xapo, and Coinkite.