Did you know that Cardano offers a different approach to smart contracts for security and other operational reasons?
Unlike other blockchains that use a banking-style account model, Cardano does not have one smart contract calling another in the same transaction.
Cardano smart contracts are used as validators to evaluate logic and decide whether a certain transaction should succeed or not, depending on the conditions set in a contract.
For instance, the sender doesn't need any permission for a transaction to work; they can just transfer ADA (or another asset like the NMKR token) from their wallet, and it will be done.
Permission from the wallet owner is needed to spend ADA from their account, which requires the wallet owner to add a tamper-proof signature to the transaction verifying their identity. This workflow is the same on Cardano, whether it's a single or multisig (multisignature) transaction.
Multisig transactions: An introduction
In essence, multisig transaction means that multiple wallet holders sign off their assets. As an example NMKR enabled multiple signatories to receive NFTs from a project in one big transaction, which was possible with multisig. Cardano nodes (which are stake pools) validate multisig transactions by looking at input UTXOs (amount of funds in your wallet), finding the addresses that own them, and then looking for signatures corresponding to the input addresses.
Notably, with the latest advancements by IOG to UTXO (now called extended UTXO), multisig contracts can execute, all without going off-chain, which wasn't the case before.
Now that we have covered the technicalities let's see how multisig can be used in the real world. Here are our top use cases:
8 use cases for multisig transactions
#1 Safeguard sensitive transactions
Multisig can be used to require multiple signers in order to execute a transaction. This can be useful for sensitive transactions. For example, you could create a multisig wallet with the CEO, CFO, and COO as signers. This way, all three parties would have to review and agree on the transaction before it is carried out.
#2 Enable contract execution only after specified conditions are met
For example, a multisig contract could be created that can only be executed if two of three signers agree to it. This could be used to create a voting system or to make sure that all parties involved in a transaction agree to it.
#3 Create time-locked transactions
This means that a transaction cannot be executed until a certain amount of time has passed. This can be used to create escrow contracts or to ensure that a transaction is not executed until all parties have had a chance to review it.
#4 Create limit orders
A limit order is an order to borrow or lend security (such as an NFT-bond) at a specified price. Limit orders are not executed until the security reaches the specified price. This can protect against market volatility or ensure that a trade is executed at a fair price that x out of n number of signers agree to.
#5 Create contracts that release funds over time
This can be used to create a subscription service or ensure that funds are released only when certain milestones are met. Conditions for milestones would then be needed by x out of n signers before execution.
#6 Whitelist addresses that are allowed to receive funds from a multisig wallet
This can be used to create a safe investment environment or ensure that only trusted parties can access funds. Conversely, multisig can also be used to create a blacklist of addresses that are not allowed to receive funds from a multisig wallet.
#7 Create contracts that can only be executed by a certain number of signers
This can be used to create voting contracts or to ensure that a contract can only be executed by a majority of signers.
#8 Do NFT drops quickly and avoid any unnecessary transaction costs
Mint NFTs on-demand and pay the creator in ADA, swap one NFT for another, or trade multiple. One single transaction can cover it all. NMKR Studio can enable you to get there.
In conclusion, multisig provides a higher level of security and control for users. It also enables the creation of more complex contracts and transactions. However, they can also add complexity to a transaction because multiple signers are required. For example, a smart contract transaction is better when only 2 signers are required and the transaction needs to be executed immediately.
One advantage of using smart contracts over multisig is that they can be programmed to execute immediately when certain conditions are met. However, it is also important to remember that smart contracts can also be complex and may require a higher level of technical expertise to develop, integrate and manage.
In the end both, smart contracts and multisig, have their pros and cons; it’s just a matter of deciding which is best for your needs.
Your NMKR team