I would say I’m generally a jovial person, but if I woke up and realized I’d lost 7,500 bitcoins, I would encourage the rest of the world to back away slowly without making any sudden movements. Fortunately for the public good this hasn’t happened to me, but it did happen to an unfortunate fellow named Jeremy Howells. He became semi notorious in the bitcoin community for accidentally disposing of his hard drive with the keys to all his bitcoins on it.
We’re still in the early stages of bitcoin’s life cycle, and five years is like the blink of an eye in currency-years. There is a strong trend toward mass adoption (5 million wallets growing 8x year over year, according to Mary Meeker’s annual report), but we’re not there yet. As things currently stand, there’s a fundamental disconnect in usability and control. You can choose to keep your private keys yourself in what is known as a client-side wallet, or you can hand them over to another party which stores them for you in a web wallet. When you do the latter, you’re trusting that they are taking appropriate security measures, and keeping at least the majority of your bitcoins incold storage. Unfortunately, Mt. Gox and other recent fiascos prove that this isn’t always the case, which is why the safest thing to do is probably to diversify your holdings by using a variety of wallets so if one gets hacked, you don’t lose everything.
You probably like things to be easy; most people do. Many users simply don’t want the headache of thinking about security, which is the appeal of a full-service solution that stores your private keys for you. The issue is problematic for more advanced or tech-savvy users, who generally want a heightened degree of security without sacrificing the ability to keep control of their assets.
Conveniently enough, the Bitcoin protocol can accommodate such a tall order. Pay to Script Hash (P2SH) is a type of bitcoin address that was introduced as part of Bitcoin Improvement Proposal 16 (also known as BIP 16), as of early 2012. P2SH addresses can be secured using a more complex algorithm than standard addresses and involve the use of multiple Elliptic Curve Digital Signature Algorithm (more commonly known as ECDSA) keys, rather than only one.
Multi signature wallets allow users to maintain direct control over their bitcoins while also removing some of the security burden from them. In the event that one of their private keys is lost or stolen, it’s no longer a catastrophe. The concept in m-of-n signature schemes is fairly simple, at least at an a