Foundation on Nostr: Multi-signature wallets can be the most secure way to store your bitcoin… But ...

Multi-signature wallets can be the most secure way to store your bitcoin… But they’re not for everyone!

Learn the pros and cons so you can choose for yourself 🫵

Multi-signature wallets (often just called ”multisig”) are one of the most powerful breakthroughs that came with Bitcoin, as we don’t have to rely on a lawyer to escrow funds anymore between multiple entities.

All we need is cryptography and we can cut out another middle-man 😎

Multisig at its core functions similarly to a standard Bitcoin wallet — only the right signature can allow funds to be sent to a different address.

However, instead of just needing one signature, now multiple signatures are required to make a valid transaction. This greatly increases the potential security of a wallet, but also comes with some big trade-offs.

So what are the pros and cons of multisig for Bitcoiners today? 🤔

Pro - Powerful custody for organizations

What once used to require lawyers, complex bank accounts, and legal headaches, now can be achieved through simple cryptography.

Organizations can share custody of funds safely and securely with no middle-men or custodians.

Pro - Losing a single key doesn’t mean lost funds (usually)

For any proper multisig quorum (threshold of signatures needed) losing a single key - or even multiple! - doesn’t lead to lost funds. For instance, a 3-of-5 quorum could lose two keys and still access their Bitcoin.

Pro - Harder to spend funds

While this may not sound like a pro, the main benefit for individuals who use multisig is that a single key or seed being compromised doesn’t lead to theft (or loss) of funds.

In certain threat models this can be a powerful step up in security.

Cons - Harder to spend funds

Yes, this is both a pro and a con 🤔

While it can sometimes be a good thing to make it harder to spend funds, this added complexity or geographical distance when accessing funds can be problematic for individual users!

If you use a multisig with just one person and spread the keys out geographically, things like government lockdowns or tightened border crossings can make it impossible to actually access your bitcoin.

Cons - More complex backups

While backing up even a standard wallet can be daunting, multisig ratchets up the complexity even more.

Not only do you need to properly secure multiple seed phrases, but also additional metadata about the wallet 😱

Even though multisig can help prevent loss of funds, this backup complexity can actually increase the risk of losing your precious sats if you’re not 100% sure how to properly handle multisig backups ❗

Cons - Harder for loved ones to recover

An aspect of every Bitcoiner’s setup that often gets overlooked is what happens if you pass away or are incapacitated? Can your spouse/parents/kids access your Bitcoin to actually pass on your generational wealth?

Multisig can make it drastically harder to actually recover funds in this worst-case scenario, so it’s vital that you be sure that those you love actually test your recovery process and can recover without any help from you.

What’s right for YOU 🫵

While multisig has a lot of pros and cons, deciding if it helps your specific self-custody setup is a personal choice. For more advanced users the added complexity might not be a problem, so the cons are worth the greater security against theft/loss.

On the flip-side, many users have improperly backed up their multisig and ended up losing funds they otherwise would have been able to recover.

For all the reasons mentioned here we normally recommend single users use single-sig - K.I.S.S. 😉

Want to learn more?

This threads already getting long, so keep an eye out for next week’s thread where we’ll cover the ins and outs of actually using multisig, what backups look like, and how a hardware wallet like Passport can help simplify backups.

In the meantime, you can read through this fantastic resource by QnA (npub15c8…ssvx) to better understand multisig wallets 🔗

https://bitcoiner.guide/multisig/

Want to see multisig in action?

We’ve built out a detailed tutorial for using Passport with Bitcoin Keeper on YouTube, where you can see the process of setting up a new multisig wallet from start to finish 📺

https://www.youtube.com/watch?v=NGSRMoGZn-w

That’s it! Thanks so much for reading, and we hope this helped better explain the pros and cons of multisig, letting you make a well-informed decision on what setup is right for you.

For more like this, follow us or visit our website @ foundationdevices.com 🫡