Putting multi-signature into practise: Cosign Coin
Wednesday 07 May 2014
You may have heard about bitcoin 2.0 features in recent weeks, one of which being multisignature wallets. To reiterate, multisignature bitcoin wallets have more than one private key associated with them, requiring a certain amount in order to access their funds.
A 2-of-3 bitcoin wallet, for example, requires 2 out of the 3 available private keys in order to access its funds. This sounds good in theory for conducting transactions with others, but how would this actually pan out? To answer this question, Im usinge the example of a service called Cosign Coin, a multisignature escrow service.
How does Cosign Coin work?
Cosign Coin is not yet another cryptocurrency, but a multisignature escrow that allows you to conduct transactions without the need to trust the escrow service.
Let’s say you would like to sell a used graphics card for about 0.5 BTC. Normally, as the seller, you would send that 0.5 BTC directly to the escrow and hope they are trustworthy. Your bitcoins are entirely out of your hands, and there is that potentially corruptible human element when using this type of escrow.
With a multisignature escrow, you would simply generate a multisignature bitcoin address with 3 private keys associated with it, with one belonging to you, one belonging to the buyer, and one belonging to Cosign Coin.
Proceeding with the example, the buyer sends their 0.5 BTC to the new multisignature address while you ship your graphics card to them. Once the buyer receives the graphics card, they send their private key over to you, giving you control over the 0.5 BTC in the multisignature address.
But let’s say something goes wrong; the buyer claims they did not receive the graphics card when you clearly sent it. This is where the escrow service acts as an arbitrator, holding their own private key for this reason; they give their private key to the person they deem correct in the dispute, giving them control of the funds.
Both the buyer and seller attempt to provide evidence supporting their claim. In your case, you provide the tracking number that is associated with your graphics card and proof that the tracking number is indeed associated with it. The service, in this case Cosign Coin, would deem that you are correct in your assertion that you indeed sent your graphics card and will give you their private key. In the end, you still get your 0.5 BTC.
How do I use Cosign Coin?
Upon reaching their website, you will be greeted immediately with a prompt allowing you to create a multisignature escrow address. Here, though, is where it gets a bit tricky due to the fact that you would have to utilize your bitcoin address’ public address.
This may confuse a newcomer, including myself, who believed that a bitcoin address and its public key were one and the same. This idea is not true, however, and extracting said public key will be a different process based on what wallet you choose to store your bitcoins.
For example, if you choose the standard Bitcoin-QT wallet, you would need to reach the “console” under the “help” tab. You would then enter “validateaddress” into the console that appears. You’ll be presented with a readout like the one below:
"isvalid" : true,
"address" : "1Fb34EMjNdfWNZFVJChTGvJ6bU3gCnYqbY",
"ismine" : true,
"isscript" : false,
"pubkey" : "02385a6472ec8e49ea84d805210526eed03ab3bf347e27d1dd3886a37b2510618d",
"iscompressed" : true,
"account" : ""
The bold “pubkey” will be your address’ public key, which you will enter into the Cosign Coin “Start New Escrow” form.
Do keep in mind that each bitcoin wallet will have a different means of obtaining public keys for each address. Bitcoin-QT may have a slightly different process than Electrum or Blockchain.info, for example.
If a dispute does need to be resolved between buyer and seller, Cosign Coin will allow human intervention, but for a slightly higher fee than a normal transaction would entail. If a dispute ticket is submitted, yet both parties come to an agreement, you don’t have to pay the higher fee; it only applies if the dispute resolution service was actually utilized.
It was ultimately inevitable that bitcoin 2.0 features would be implemented, and Cosign Coin is a good example of such implementation. Anonymous buyers and sellers can now trade more reliably than ever before, creating a safer trading environment from fraudulent people. Be aware of other services that utilize bitcoin 2.0 features effectively, as they will be cropping up.
If you’d like to check out Cosign Coin, you can do so here.
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