What Is Bitcoin Multisig Custody?

Multisig, or multi-signature, refers to the security model of a given Bitcoin wallet. Unlike traditional “singlesig” cold wallets, which only require a single signature to broadcast bitcoin transactions, multisig wallets require multiple signatures, as the name implies.

Whoever owns the multisig wallet designates which private keys can interact with the wallet and how many signatures the wallet requires.

You can think of multisig configuration as m-of-n, where m is the number of
signatures required out of the total n private keys designated to share wallet ownership.

For example, if Alice, Bob, and Jon had multisig custody over a 2-of-3 multisig wallet,
Alice and Bob could still sign and broadcast transactions from the wallet if Jon was unavailable at the time.

How you design the signing requirements is up to you. You can create 3-of-5, 2-of-4, or any other multisig configuration that suits your needs. Keep in mind, however, that you can become your own greatest threat, and incorporating too much complexity could accidentally lock yourself out of your own money.

How Does Bitcoin Multisig Work?

Consider the following example to gather a better understanding of how Bitcoin multisig wallets work and why they may be useful for you:

Alice, Bob, and Jon are long-time friends that live in different regions of the world.

They want to build a bitcoin business together, so they combine their bitcoin savings together and set up a 2-of-3 multisig wallet to secure and manage their joint funds. Jon makes the mistake of storing his private key on his computer, whereas Alice and Bob do the smart thing and stamp their seed phrases into metal and keep them somewhere safe.

Months later, a hacker compromises Jon’s computer and finds his private key stored on the computer.

If those keys only granted the thief access to a single-signature wallet, then Jon would’ve lost the Bitcoin stack entirely. However, since Alice and Bob each hold the other private keys needed to sign transactions, the thief is out of luck.

Bitcoin multisig keys have no hierarchy in this instance – it doesn’t require any specific key, it just requires two out of any of the three private key signatures.

However, let’s say that Alice was the “owner” of the bitcoin. Bob and Jon are just great friends, so they want to help her secure her bitcoin with multisig without having spending privileges themselves. In this case, Alice could designate her specific private key to be required in transaction signing. This way, only Alice can move the money, and if she somehow loses her private key, the seed phrase backup she hopefully saved can protect her from losing her funds entirely.

Advantages And Disadvantages Of Bitcoin Multisig Custody

Multisig wallets certainly have a lot of advantages to consider over a standard singlesig setup. However, it’s not a one-size-fits-all solution, so be sure to keep in mind all the tradeoffs before determining if multisig is right for you.

Advantages

The enhanced security features of multisig wallets gives you:

• Enhanced resiliency to attacks: Since multisig requires multiple signatures, hackers can’t access or move your bitcoin even if they were to compromise one of your private keys. You can even geo-distribute your private keys anywhere on earth, physically and literally enabling you to safeguard your assets all around the world.
• Collaborative custody: While you can have just a single person managing a multisig wallet with multiple private keys, you can also designate multiple outside parties to come to consensus before executing a transaction. This way, the bitcoin is still accessible even if something happens to one of the key holders.
• Less risk of human error: With a standard singlesig Bitcoin wallet, you lose your bitcoin if you lose the private key. Multisig mitigates this risk by splitting access across multiple keys so that losing one doesn’t mean losing funds entirely.

Disadvantages

Enjoying that additional boost in security has its own drawbacks, including:

• Complexity: Multisig wallets do require a base level of technical knowledge to set it up properly, While accessible and easy to learn, newcomers to bitcoin may struggle more with the initial steps and have a greater chance of making mistakes that pose risks to their holdings.
• Access Delays: The whole process of moving bitcoin stored in multisig is generally slower as it requires more signatures, thus incurring more time. For those in no rush, this should be no problem, but if you require quick and easy access to your bitcoin, multisig may be more problematic than helpful.
• Costs: Having multiple wallets is certainly more expensive than just one, and maintaining your setup over time could prove to be more expensive than a standard singlesig solution. Over time, the fees associated with additional multisig transactions can add up, so be mindful of what you’re spending when using multisig.

Who Needs Bitcoin Multisig Custody?

So, why is multisig important? Who could benefit from a Bitcoin multisig setup?

Technically speaking, everyone could benefit from multisig setup, in terms of direct security improvements. But for those really thinking more seriously about it for themselves, consider these three questions:

• How much Bitcoin do you own, and is it highly valuable to you?
• Do you have the technical skills and willingness to learn about Bitcoin multisig custody?
• Is the additional security worth the potential hassle and costs?

If you’ve answered yes to these questions, then you’re probably one of the many “everyday Bitcoin holders” that could benefit from multisig. You’re familiar with the technology, you understand the importance of setting it all up, and you’re ready to make the switch.

For simple, secure long-term storage, a basic 2-of-3 multisig setup may be ideal for your preferences. While a singlesig wallet might be easier to manage for one person, the additional security layers could help you sleep better if you’re worried about managing a single private key.

But who else is Bitcoin multisig ideal for?

Large investors

Larger stacks of bitcoin certainly call for greater security measures. The more you grow your stack, the more a hacker may want to take it from you. The target on your head becomes larger, so you’ll want to be sure you’ve properly safeguarded your bitcoin.

Multisig is highly recommended in this case. Yes, it may come with more fees and time initially to set things up, but your mental state will thank you knowing that you’ve stored your wealth safely in the most robust security network – not just monetary network – ever created.

Joint Ventures and Partnerships

When two or more parties are involved in a venture, multisig provides a way for all involved to have a say in the use of shared funds, ensuring transparency and joint decision-making. This could be a small business arrangement, or even just a marriage. Multisig gives multiple parties the ability to run a joint Bitcoin wallet, similar to a joint bank account.

Businesses And Organizations

Businesses can distribute the responsibility for signing transactions among different people within the organization to ensure no single person has unilateral control. For businesses or any organizations managing bitcoin in any capacity, multisig enhances accountability, reduces the risk of unauthorized access, and protects your stack in case of lost private keys.

Not only that, but multisig custody also falls in line with regulatory compliance requirements, making it an attractive option for businesses seeking robust asset protection and risk management in bitcoin’s ever-evolving legislative landscape.

Inheritance Planners

Death is an inherent part of life, and so it naturally creates a problem when it comes to passing on bitcoin to the next generation. If the private key holder isn’t alive to sign transactions, is the bitcoin just lost forever?

Not if it’s insured with multisig custody.

In a traditional singlesig setup, that bitcoin gets carried to the grave alongside the person who passed. Multisig, on the other hand, enables a mechanism for businesses or other third parties to help pass it along to beneficiaries. Typically, close friends, family, or legal representatives, can hold one of the multiple keys, ensuring that they don’t have full access, but they can sign transactions when necessary. Combine this with a clear, legally-defined inheritance process, and these additional key holders can now collaborate with the other designated entities – whether that be legal firms, dedicated multisig services like Casa or Unchained, or other involved parties – to access and move the bitcoin according to the deceased’s wishes.

Best Multisig Wallets For Securing Bitcoin

There are all kinds of Bitcoin storage devices out on the market that support multisig configurations, however, here are some of the most popular options available:

ColdCard

ColdCard is one of the most popular Bitcoin-only hardware devices out there. Beyond its multisig capabilities, ColdCard comes with other advanced security features, like air gapping and other security measures, to maximize your Bitcoin stack’s safety.

Blockstream Jade

The Blockstream Jade is another popular hardware wallet with multisig configuration. It comes with its own dedicated software, Blockstream Green, to streamline your custody management, and a built-in camera for scanning QRs and operating entirely air-gapped, like the ColdCard. However, it’s also compatible with other mobile wallets or desktop applications, such as Sparrow Wallet.

Sparrow Wallet

Sparrow Wallet is a great desktop wallet option to include in your Bitcoin multisig setup. If you like having flexibility and care about convenient ease of use, consider incorporating a desktop wallet like Sparrow.

You can download Sparrow on an old, unused or wiped computer that’s never been connected to the internet, or even to your daily driver (though that’s not the best security-minded solution if you take your computer to Starbucks and connect to public WiFi regularly). Just be sure to store your private key somewhere offline, safely and somewhere you won’t forget.

Electrum

If Sparrow doesn’t feel comfortable to you, Electrum is another great multisig desktop wallet solution. Like Sparrow, Electrum makes it easy to integrate hardware devices or other wallets into a multisig setup that you can operate from the Electrum dashboard.

SeedSigner

Finally, if you prefer a more DIY approach to truly minimize your contact with third parties, consider buying a SeedSigner and building the wallet yourself! SeedSigner provides you with all the information you need to build the exact hardware setup you desire to set up multisig with.

It’s a good idea to incorporate some form of hardware wallet, ideally air-gapped, in your multisig setup to reduce the risk of an online attack. There are plenty of hardware devices available besides the three listed here (ColdCard, Blockstream Jade, SeedSigner), so be sure to do your own research and review all the options available to you.

Final Thoughts

Bitcoin multisig custody offers greater security and collaborative benefits that aren’t otherwise possible with any other storage solution. While it may not suit everyone due to its intricacies, those with more willingness to learn something new can enjoy the peace of mind that comes with robust multisig protection.

Bitcoin is growing larger by the day, and with its increasing popularity comes more and more products on the market. Choosing the right multisig wallet for you takes careful consideration, but it’s well worth the effort to set up and live sovereignly.

FAQs About Bitcoin Multisig Custody

Q: Is multisig only for tech-savvy people?
A: While setting up a Bitcoin multisig wallet requires some technical knowledge, multisig products have become increasingly user-friendly over time, and with more education, multisig custody may become much more accessible to the everyday Bitcoin holder.

Q: How do I create a Bitcoin multisig wallet?
A: Once you’ve determined which wallets you’d like to use in your multisig setup, you’ll need to choose a multisig configuration (like 2-of-3 or 3-of-5), select a wallet software to manage the keys, such as Sparrow or Electrum, generate private and public keys for each wallet (being sure that each party only has access to their own respective keys), create a multisig address, and begin initiating transactions! Send a few test transactions with different devices after setting things up to ensure that your multisig configuration is working properly.

Q: Can multisig wallets be hacked?
A: Bitcoin multisig wallets enforce extremely robust security measures, but only if they’re implemented correctly. Failure to properly set up your multisig wallet could result in hacks or other accidental loss of funds. Be sure to do thorough research on setting up your specific multisig wallet the correct way, and only follow documentation provided by the original vendor to avoid potential third party scams.

Thank You For Reading

If you found this article helpful, please consider sharing it, supporting one of these affiliates, or making a value for value donation so that we can continue to publish more Bitcoin-only content.