Multi-Sig refers to a Bitcoin wallet that requires multiple private keys to sign transactions.
An example of this would be 2-3 Multi-Sig.
2-3 Multi-Sig is where there are 3 independent wallets that are used to create a fourth “special” wallet.
The 3 independent wallets can be used as normal and will keep its independent properties throughout having the multi-sig wallet.
The fourth multi-sig wallet is such that in order to sign a transaction, 2 out of 3 of the original wallet keys are required.
Multi-Sig is not limited to 2-3, the general form is M of N. Where M is the minimum number needed and N is the number of available choices. So you could have a multi-sig that is 3-5. This would be a case where you need 3 seed phrases of a given 5.
How does this help?
Multi-Sig wallets are more secure and difficult to obtain maliciously because the hacker would need multiple seed phrases in order to spend any bitcoins from the wallet.
What if I lose one of the seed phrases? Or it becomes compromised?
As long as you have access to 2 of the 3, you are able to move the bitcoins from the compromised wallet into a new multi-sig wallet.
The biggest problem with self-custody is the responsibility of not losing your seed phrase. With Multi-Sig, it is possible to lose one of the seed phrases and have your Bitcoin safe.
Why would I want to have to keep track of multiple seed phrases? Isn’t one enough?
It may be more difficult to keep track of multiple seed phrases but it is much safer.
Level 0: Having 1 seed phrase stored on a wallet app.
Level 1: Having 1 seed phrase, written down on a sticky note in your diary.
Level 2: Having 1 seed phrase, engraved in a phrase plate, stored in a safe.
Level 3: Having a 2-3 multi-sig wallet where one seed is stored in a safe, another seed is stored in a safe deposit box at a bank and the last seed is dug in a hole in a backyard.
In the case of Level 0, this is referred to as a “Hot Wallet”. These are beneficial in being able to quickly transact without having to fumble around finding your seed phrase but it loses in security.
In the case of Level 3, you lose the benefit of quickly transacting when you need to but it is HIGHLY secure. A malicious hacker would need to get a hold of 2 out of those 3 phrases. Which would be unlikely. This case is best used for long term savings.
The point here is that as a Bitcoin user its best to have both “Hot” and “Cold” wallets. Your “Hot” wallet would have limited bitcoin on it but is easily accessible to quickly transact when needed and your “Cold” wallet would have a lot of bitcoin on it and thus safely stored away.