Multi-party Approval System Study Guide

Glossary

Multi-sig: A cryptographic method that requires multiple keys to authorize access to or use of funds or data. For example, a 2/3 multi-signature scheme requires 2 of 3 keys to authorize a transaction.

Key splitting: A technique for splitting a private key into multiple parts (called key components), where a certain number of components are required to reconstruct the original key.

Shamir's Secret Sharing: A key splitting algorithm that allows secret information to be split into multiple parts and distributed to different participants. A certain number of participants are required to reconstruct the original secret.

Hierarchical Deterministic Wallet (HD Wallet): A digital wallet that generates multiple key pairs from a single seed phrase. It uses a tree-like structure where each key pair can generate child key pairs, which improves security and simplifies key management.

BIP32: Bitcoin Improvement Proposal 32, which defines the standard for hierarchical deterministic wallets.

BIP44: Bitcoin Improvement Proposal 44, defines a standard for organizing multiple coins and accounts in a hierarchical deterministic wallet.

Node Tree: A tree structure used by HD wallets to organize and generate key pairs.

Extended Private Key: A key that contains a private key and a chain code, which can be used to generate child private keys.

Hardened Key: A key that cannot be used to generate child private keys.

Child Key Derivation (CKD): The process of generating a child key from a parent key.

Redeem Script: A script that defines the conditions of a multi-signature transaction, such as the number of signatures required.

Pay-to-Script-Hash (P2SH): A type of Bitcoin transaction that sends a hash to a redeem script instead of a public key.

Unspent Transaction Output (UTXO): An unspent output in a Bitcoin transaction that can be used as an input for future transactions.

Sweeping Transaction: A transaction that sends all funds in a wallet to another address.

Short Answer Question

What is the difference between multi-signature and key splitting?

What are the advantages of HD wallets?

What role do BIP32 and BIP44 play in HD wallets?

What is a node tree and how is it used in HD wallets?

What is the difference between an extended private key and a hardened key?

Explain the role of a redemption script in a multi-signature transaction.

What are the advantages of a P2SH transaction?

What is a UTXO and how does it work in a Bitcoin transaction?

Describe sweeping transactions and their uses.

Why is an identity service provider needed in a multi-party approval system?

Short Answer Question

While multi-signature uses multiple independent private keys to authorize transactions, key splitting splits a single private key into multiple parts, requiring a certain number of parts to reconstruct the original key.

HD wallets generate multiple key pairs using a single seed phrase, which increases security and simplifies key management. They also allow the creation of subaccounts with different permission levels.

BIP32 defines the standard for hierarchical deterministic wallets, while BIP44 defines the standard for organizing multiple currencies and accounts in these wallets.

A node tree is a tree-like structure used to organize and generate key pairs in HD wallets. Each node represents a key pair, and child nodes represent key pairs derived from their parent nodes.

An extended private key contains a private key and a chain code, and can be used to generate child private keys, while a hardened key cannot be used to generate child private keys.

A redemption script defines the conditions for a multi-signature transaction, such as the number of signatures required. It is stored on the blockchain and executed when a transaction needs to be verified.

P2SH transactions improve privacy and efficiency by storing the hash of the redemption script on the blockchain.

UTXO is an unspent output in a Bitcoin transaction that can be used as an input for future transactions. Bitcoin wallets calculate balances by tracking UTXOs.

A sweep transaction is a transaction that sends all funds in a wallet to another address. It is often used to transfer funds from an old wallet to a new wallet, or to recover funds after a security breach.

Identity service providers are responsible for verifying the identity of users and preventing fraud. In a multi-party approval system, it can verify the identities of all parties involved in a transaction and ensure that only authorized users can access funds.