What are multisig wallets and How do they work?

Multisig wallet means multi signature wallet.

It means whe  you set up that wallet, you decide that how many co-signers are needed for that multisig wallet as well as threshold of co-signers need to sign a transaction to broadcast it to Bitcoin mempools and wait for Bitcoin miners to confirm it.

How to identify a transaction is multisig?
https://bitcoin.stackexchange.com/questions/72225/ho-to-identify-a-multisig-transaction

When you sign the transaction, the wallet will generate you the partially signed bitcoin transaction (PSBT) which you will need to send to the second signer. Only what the second signer needs is the partially signed transaction (PBST) from you and then also sign it and broadcast the transaction. This is how multisig wallet works.

It can be through QR code, file or copy and paste.

You can not use exchange for it. You will another noncustodial wallet that support multisig. I can recommend Electrum and Sparrow.

It is worth knowing that Electrum seed phrase is different from BIP39 seed phrase. Although, passing the master key to the cosigner should not be a problem, be it Electrum or BIP39 seed phrase.

dumbing things down
when you pay a multisig address the payment sender to the address just sees one address to send funds to

however the multisig address owner(s) created the receiving address by hashing 4 separate addresses together with an extra hex of data to say how many of the 4 need to sign(2 in topics example)

when spending funds given to the multisig address, the signature script will then list all 4 addresses and the data that sets how many signers are needed so that the network can validate they hash to the multisig address, and then any 2 of those 4 can sign using there key so that the transaction spending from a multisig has 2 valid signatures appended to the transaction, using keys associated with listed separate addresses

if you are using a wallet that supports multisig, then that wallet will have features to copy the signature and you can paste via any communication  method you like of the other participants of the multisig. these wallets also have features to take in that signature and complete it before broadcasting the complete tx
different wallets have features in different places so read the tutorials/help sections of your preferred wallet

Take note that you should not use a multisig wallet if you do not know what you are doing, and obviously you do not for now, you can easily make a mistake while trying to set it up and lock yourself out of your funds for good. Extra layers of security like a passphrase and a multisig wallet is great, but only if done correctly and in a very safe enviroment.
You don't own the keys to your funds in an exchange, so your exchange wallet cannot be a co-signer in a multisig wallet. Setting up a multisig wallet with all co-signers on the same device also defeats the purpose of creating one, thought you should know that too.

That’s the thing, you can’t fully authorize a transaction without the other parties to the signature having to sign with their keys. Their keys authenticates your transaction else, it all stays put. Coinbase or which ever exchange you might be sending your coins to don’t need to know this, it ain’t about them. It’s just you, your wallet and the blockchain network but, every initiation and broadcasting of your transaction and broadcasting is done from your wallet. Exchangers just receive it and from there, you could sell or trade as you please.

Your wallet store the rule needed to spend the Bitcoin from multi-signature address. The rule (in form of script) revealed when you spend Bitcoin from the multi-signature address, where hash of the script must match the address.

Take note it's major simplification and it works a bit differently if Taproot is involved.

I'm not so sure if you got it finally right. Let's stay with your 2-of-4 multisig wallet scenario.

To generate addresses of this wallet, ALL four extended public keys are needed. You can't afford to loose any of the four! (I think this is what many people don't get right when for signing not all signers are needed, only two in this example are sufficient). So any of the four possible signers needs the extended public keys of all other signers besides his own one to be able to setup the wallet and generate the wallet's addresses.

To sign a transaction two distinct signers of the four are sufficient. This 2-of-4 multisig setup can afford to loose two extended private keys, but, again, all four extended public keys are still required!


No, compliant nodes that follow and enforce the consensus rules are the ones that check and validate stuff and only valid transactions are written into blockchain blocks by mining nodes (today these are ususally mining pools).

The lock script of a transaction output defines what needs to be presented to fulfill it and to be able to move the coins. Checking if spending conditions are fulfilled and thus spending the UTXO is valid is duty of compliant Bitcoin nodes.