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Is It Time To Switch To A Multi-Sig Wallet?

By ⚡ Daniela ⚡ | Me and Bitcoin | 19 Jun 2023


Multisig, short for "multi signature," is a type of wallet that requires authentication or "proof" from more than one key to create a spend transaction. This differs from single-sig wallets which only require one signature. With multisig wallets, you have the flexibility to configure your wallet based on your personal needs and circumstances.

Two common approaches are:

  • 2-of-3 setup: Three keys are used to create the wallet and protect bitcoin, but only two of those keys are required to authorize a spend.
  • 3-of-5 setup: Five keys are used to create the wallet and protect bitcoin, but only three of those keys are required to authorize a spend.
  • 2-of-2 setup: one key is the set of your (12/18/24) seed words and the second key is your passphrase. This isn't a standard multisig but worth a mention, IMHO. 

 

The number of different multisig configurations is almost limitless and can be tailored for any scenario. For example, a company holding bitcoin on their balance sheet might opt for an 7-of-12 setup where all board members hold a key, and at least seven members must approve spending transactions. Individuals would likely not require this level of complexity and would opt for simpler setups with fewer keys.

 

Benefits of Multisig

Why you might want to use multisig?

1. Removal of single points of failure - In single-sig setups, if the device holding private keys or corresponding mnemonic seed backup gets compromised; so does your bitcoin. However in multisignature wallets an attacker would need access not just to the multi-signature wallet (or backup file), but also minimum numbers of signatures required making it difficult for attackers.

2. Redundancy - With multisignature wallets you can afford losing at least one key without risking loss funds i.e., loss funds due by misplacing/losing hardware devices or forgetting passphrases.

3. Protection against compromised manufacturers – If manufacturer produces malicious hardware devices with backdoor they could wait until funds deposited into account then drain them anytime in future. However, with multisig wallet that uses devices from multiple vendors mitigates this attack.

 

Considerations for Multisig

While multisig offers improved protection and redundancy over single-sig setups, there are some new problems to consider before implementing it:

  • More seeds to backup - Every device or key has its own mnemonic seed backup which needs secure storage.
  • More devices to secure - Storing these devices in one location is an attack vector so more the number of devices used, more secure locations required.
  • Wallet configuration backup – In a doomsday scenario where a single key (and its backup) in a 2-of-3 setup is lost and the computer holding the wallet software is also not accessible; then remaining two keys on their own aren't sufficient to recreate the wallet. To mitigate this problem, it's advisable to keep copies of the wallet backup file with every key backup.
  • Inheritance - If only you know how to access your Bitcoin wallet but not your next of kin; they may never be able to recover those funds after you pass away without proper instructions.
  • Spending inconvenience - If two keys are needed from different locations just for spending purposes, it could become inconvenient if using that particular account frequently. 

 

Overall, Multisig wallets add an extra layer of security by requiring more than one signature/key which makes attackers work harder while protecting against hardware vulnerabilities as well as providing increased redundancy against loss/misplacement/theft etc., It’s important however that you understand all considerations before adopting multisignature wallets into your routine usage patterns. There's simply not an easy shortcut to secure custody. 

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⚡ Daniela ⚡
⚡ Daniela ⚡

As a passionate writer with a keen interest in exploring innovative technologies, I discovered the captivating world of Bitcoin. Here to write my thoughts.


Me and Bitcoin
Me and Bitcoin

This blog focuses exclusively on Bitcoin, covering various aspects related to the cryptocurrency. It explores Bitcoin's history, its economic principles, and its potential implications in the financial world. The blog also delves into the potential impact of Bitcoin adoption on economics, politics, and society as a whole.

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