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Level 7: Multisig Protocols

Protocols to manage multi-signature Bitcoin custody (any amount).

Level 7
Level 7 -- Multisig Protocols

Multisig (multi-signature) Protocols are the gold standard for securing Bitcoin. Unlike single-signature wallets, which rely on one private key, multisig requires multiple keys to authorize transactions, offering unmatched security and redundancy.

These can be configured in any m-of-n quorum, which allows for both security and fault tolerance, e.g., a 2-of-3 quorum requires 2 valid signatures from any 3 private keys -- which is ideal for inheritance planning and collaborative custody.

That said, managing a multisig setup can be complex for both technical and non-technical users. A well-defined protocol—a set of step-by-step instructions—is essential to navigate this complexity, ensuring your Bitcoin remains secure, accessible, and manageable for you and your loved ones.

Why a Multisig Protocol?

Multisig setups, such as a 2-of-3 or 3-of-5 key arrangement, provide significant advantages: losing one key doesn’t compromise your funds, and an attacker needs multiple keys to steal your Bitcoin. These benefits come at the cost of increased complexity. Without a clear protocol, even experienced users can make errors, such as mismanaging keys, failing to document recovery steps, or exposing sensitive information. For non-technical users, the technical jargon, hardware requirements, and coordination of multiple devices can be overwhelming.

A multisig protocol addresses these challenges by:

  • Simplifying Complexity: Breaking down setup, transaction signing, and recovery into clear, repeatable steps.
  • Reducing Errors: Providing a checklist to avoid mistakes, such as improper key storage or incorrect wallet configurations.
  • Enabling Collaboration: Guiding trusted parties (e.g., family or heirs) to access funds securely, even if they lack technical expertise.

One excellent example is the Glacier Protocol, which combines multisig with rigorous operational security. Glacier breaks its process into sub-protocols (setup, deposit, withdrawal), each with detailed instructions. While highly secure, Glacier has minor drawbacks, such as address reuse and lack of BIP-39 mnemonic seed support. For users seeking alternatives, custom protocols can be tailored to balance security and usability.

Challenges of Multisig

Multisig setups are inherently more demanding than single-signature wallets. Here are the key challenges and how a protocol mitigates them:

  1. Technical Complexity: Configuring multisig requires coordinating multiple hardware wallets (e.g., Coldcard, SeedSigner) and compatible software (e.g., Electrum, Sparrow Wallet). A protocol provides step-by-step guidance, making the process accessible to non-technical users.
  2. Key Management: Storing multiple keys securely in separate locations (e.g., safes, safety deposit boxes) while ensuring accessibility is daunting. A protocol outlines best practices for storage, backup, and tamper-evident measures.
  3. Transaction Coordination: Signing transactions with multiple keys, especially across air-gapped devices, is time-consuming and error-prone. A protocol streamlines the process with clear instructions for signing and broadcasting.
  4. Recovery and Inheritance: Without documentation, recovering funds or passing them to heirs is nearly impossible. A protocol includes recovery steps and instructions for trusted parties, reducing reliance on the primary user’s expertise.
  5. User Error: Mistakes like losing a key, misconfiguring a wallet, or reusing addresses can compromise security. A protocol enforces best practices and includes checks to catch errors before they become critical.

Implementing

A multisig protocol is a written guide that you and your trusted contacts can follow. Below are the essential steps to create and implement one:

  1. Choose Your Multisig Setup:

    • Decide on the key configuration (e.g., 2-of-3, 3-of-5) based on your security needs.
    • Use reputable signing devices like Coldcard or SeedSigner, which support multisig.
    • Choose software that supports multisig, such as Electrum, Sparrow Wallet, or Specter. These tools coordinate key setup and transaction signing.

  2. Distribute Keys Securely:

    • Store each key in a separate, secure location (e.g., personal safe, safety deposit box, or with a trusted collaborator). Use tamper-evident storage to detect unauthorized access.
    • Avoid digital backups that could be hacked, and never store keys together.

  3. Document Your Protocol:

    • Use a clear, step-by-step guide covering setup, transaction signing, key recovery, and inheritance. Include wallet software versions, hardware details, and contact information for trusted parties.
    • Store the protocol securely (e.g., encrypted or in a physical safe) and share relevant sections with heirs or collaborators.

  4. Test Your Setup:

    • Perform small test transactions to verify your protocol, including signing with multiple keys and recovering funds from backups.
    • Simulate failure scenarios (e.g., losing one key) to ensure your recovery process works perfectly.

How Much Security Do You Need?

The level of security required for your Bitcoin custody depends on your threat model. A protocol benefits all levels of security, but at the higher levels involving multisig, it is essential to manage complexity and ensure reliability.

  • Minimal Security: A mobile app hot wallet (e.g., BlueWallet or Phoenix) may suffice for small amounts or users unconcerned about potential loss. A simple protocol can still help by documenting backup and recovery steps, reducing the risk of errors.
  • Baseline Security: Using a hardware wallet like a Coldcard or SeedSigner with a single-signature setup and proper seed phrase backup provides robust protection. A protocol ensures consistent key management and inheritance planning.
  • Advanced Security: Multisig setups, such as a 2-of-3 or 3-of-5 key arrangement, add redundancy and resilience. A protocol is critical here to coordinate multiple keys, streamline transaction signing, and guide non-technical users or heirs.
  • Ridiculous Security: For protection against sophisticated threats -- like hostile nation-states (such as North Korea or Canada) -- use a high-threshold multisig, geographically distributed keys, air-gapped devices, and self-hosted full nodes.
  • Ludicrous Security: For NSA-level threats and nuclear-launch-code levels of security.

Regardless of your needs, a protocol is indispensable to manage your wealth. And with a multisig protocol, you’ll protect your wealth better than any bank or custodian ever could.