Multisignature addresses are basically permission slips to make digital currency transactions and they help protect against fraud.
To understand multisignature addresses, the best analogy is the signatures needed for a business check. You know how, if a business plans to write a check for a large amount of money, the business might require at least two signatures to confirm that the purchase is okay? The system is designed that way to ensure security, meaning that no one person can write a huge check on his or her own authority.
Multisignature addresses, multisigs for short, basically do the same thing for digital currency transactions. A basic example of this is configuring your digital wallet to use “two-factor authentication,” the digital form of providing two forms of ID to verify your identity. You’d need a multisig, with a signature from each of the two factors, like, say, your computer and your smartphone. In short, multisigs require more than one key to confirm a digital currency transaction.
Here’s another example. A child might ask either Mom or Dad to spend his allowance on a game. That would be a single signature situation. To spend his college fund on a car, however, that child would likely need both parents to sign off (and be very unlikely to get either), so it’d be a multisig situation.
Think of multisigs as another layer of security. The more signatures you need, the safer your digital currency will be. Want to know more about bitcoin security? Subscribe to Bitcoin Market Journal!