Accounts

Account

A secure place where digital assets like cryptocurrencies or NFTs can be stored. It functions similarly to a safe deposit box in traditional banking.

In the case of blockchain, accounts are secured by a key pair: assets can only be transferred out of an account by using its private key, but the public key can be shared freely in order to receive assets.

Public keys are commonly shared as an address for convenience, so the terms "account" and "address" are used as synonyms.

Besides managing digital assets, accounts also represent the ownership of a private key, and act as a form of digital identity. On a blockchain, accounts can authorize transactions, configure permissions, and participate in consensus mechanisms.

Account Lifecycle

Accounts become active the first time they interact with the blockchain, for example, by receiving assets. Prior to activation, no information about them is recorded on-chain and they do not appear in block explorers.

Once activated, an account can be emptied of assets, but it cannot be deleted from the blockchain.

Mnemonics

Mnemonic Phrase

A human-readable representation of a private key, typically shown as a list of 12 or 24 random words.

It is also called just mnemonic, and often used when creating or restoring accounts in HD wallets.

NEM uses the BIP-39 standard that requires 24 English words.

Treat mnemonics as if they were private keys

Access to a mnemonic phrase provides full access to all accounts generated from it. Never share it, and avoid storing it unencrypted in digital form.

Wallets

Wallet

An application used to manage NEM accounts, initiate transactions and sign them.

It stores private keys or mnemonic phrases, and uses them to sign transactions. More broadly, wallets provide tools for exploring and interacting with the blockchain.

Wallets can be:

• Software wallets

  Applications installed on desktop or mobile devices.

  These typically offer the full range of functionality, at an increased security risk: the software wallet must be online in order to interact with the blockchain, exposing the stored private keys to potential compromise, even if protected by a password.

• Hardware wallets

  External physical devices that store keys offline.

  These are designed primarily for secure transaction signing and must be connected to a software wallet to operate.

  The private keys they contain never leave the device except when explicitly backed up, making hardware wallets significantly more secure.

Most wallets allow managing multiple accounts, QR code scanning (for signing and requesting transaction signatures), and multisig configuration. Accounts can be also imported or exported using either private keys or mnemonic phrases.

HD Wallets

HD Wallet

A Hierarchical Deterministic (HD) wallet derives a series of accounts from a single seed, which is more convenient than having to manage multiple key pairs.

This greatly simplifies the management of multiple accounts, but extra caution must be taken to keep the seed safe because compromising the seed compromises all the accounts derived from it. The seed is typically a mnemonic phrase.

Most wallets are HD wallets.

NEM uses the BIP-32 standard to generate accounts from the seed.

Multisignature Accounts

Multisignature Account

An account (called multisig) requiring signature from multiple parties (called cosignatories) to approve transactions.

Multisig accounts are configured by:

• Defining the list of cosignatories.
• Setting the minimum number of cosignatories (M) out of the total (N) required to authorize a transaction. This is known as an M-of-N multisig. Setting M equal to N (an N-of-N multisig) requires every cosignatory to sign.

For example, a 2-of-3 multisig has three cosignatories, any two of which must sign to authorize a transaction:

In the previous diagram, Cosignatories 1 and 2 sign, which meets the minimum of M=2, so the transaction is valid without Cosignatory 3.

Use cases

• Shared control over funds or functionality.

  No action can be performed on the account without approval from the configured number of cosignatories.

  This also mitigates the risk of one of the accounts being compromised.

• Multifactor authorization.

  As a security measure, users can create a multisig so that they need to approve transactions from multiple devices.

• Account ownership transfer.

  Transferring private keys is not a viable mechanism to change ownership of an account, because the receiver can never be sure that the sender has deleted their copy of the keys.

  To solve this issue, the sender can configure the transferred account as a 1-of-1 multisig, and set the receiver account as the only cosignatory.

  The account can be transferred again by changing the single cosignatory as many times as needed.

Constraints

Bear in mind the following when designing multisignature solutions:

• Maximum number of cosignatories for an account.

  A multisig account can have at most 32 cosignatories.

• Removing cosignatories has special rules.

  Removing a cosignatory does not require their own signature. For example, a removal in a 3-of-5 multisig needs at least 3 signatures from the 4 remaining cosignatories, but a removal in a 5-of-5 multisig needs all 4 remaining signatures.

  A single transaction can remove at most one cosignatory. Removing several requires separate transactions.

  The last remaining cosignatory can remove themselves, which dissolves the multisig.

• No nested multisigs.

  In NEM, a multisig account cannot itself be a cosignatory of another multisig, and a cosignatory account cannot be converted into a multisig. Multisig hierarchies are therefore one layer deep.