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LESSONS

Multisig: when and how

Multisig needs several keys to spend. It removes single points of failure for larger holdings, at the cost of setup, maintenance and explaining it to heirs. The DIY route and the collaborative services, named.

7 MIN READ
COURSE · Self-custody essentialsSTAGE 3 · OWN ITLESSON 8 OF 13
A 2-of-3 multisig: three keys in three places, any two sign.
LEVEL · Intermediate
IN THIS LESSON · 8 OF 13
BY THE END YOU WILL BE ABLE TO ANSWER
  • In a 2-of-3 wallet, what happens if one key is stolen?
  • What must be backed up in addition to the seeds in a multisig?
  • Who is multisig for, according to the lesson?
  • Why use signers from different makers in a multisig?
  • Build a 2-of-3 multisig on testnet (Sparrow or Nunchuk, with any three keys), receive test coins from a faucet, and spend them back. How many signatures did you need to broadcast?

Then prove it: a 4-question quiz · a challenge. The lesson marks itself complete at 100%.

After this lesson you can: decide whether multisig is for you, and name the two ways to get it (do it yourself, or with a collaborative-custody provider).

A multisig wallet locks coins to several keys and requires a threshold to spend: 2-of-3 is the common choice. The keys live on separate devices in separate places.

Three keys in three places; any two of them can spend.
2-of-3: three keys, three places, any two to spend.

What it buys

  • A lost or destroyed key does not lose the funds.
  • A stolen key does not lose the funds.
  • A single compromised device does not lose the funds. After lesson 3 this includes a device with weak entropy or malicious firmware, as long as the other keys came from different makers.
  • Spending requires deliberate action in more than one place, which also protects against your own panic.

What it costs

Scorecard: what happens to a single-signature wallet and a 2-of-3 multisig when a key is lost, stolen or a device is compromised.
Why people accept the extra work.

  • Setup. Three devices, coordinating software, and a backup of the wallet descriptor (the xpubs and derivation paths), without which the keys alone cannot recover the wallet.
  • Maintenance. Devices need checking; firmware ages; locations change.
  • Inheritance. Heirs must understand a setup you found complex.
  • Fees and privacy. Multisig transactions are larger and identifiable on-chain (Taproot improves this).

Two ways to get it

You hold two keys, a provider holds one; the provider cannot move funds alone but can help recover.
Collaborative custody: you keep control, they hold a spare.

Do it yourself. Sparrow (desktop) or Nunchuk (mobile and desktop) will build a 2-of-3 from three signers you own, say a SeedSigner, a Jade and a third device from another maker. You hold every key. The video below walks through it on testnet, which is the right place to practise.

Collaborative custody. A company holds one key and you hold the other two; examples include Unchained, Casa and Nunchuk's assisted plans. They cannot move funds alone; they can co-sign if you lose a key or die, and they handle the software and the descriptor backup. You trade a little privacy and a fee for help with recovery and inheritance. For many people with serious amounts it is the practical middle.

Bitcoin 2-of-4 Multisig Wallet Tutorial using Sparrow Wallet in Testnet · Wicked Smart BitcoinWatch on YouTube ↗
Mastering Bitcoin Security with the COMPLETE Nunchuk Wallet Guide · BTC SessionsWatch on YouTube ↗

When

Multisig is for savings large enough that a single signer feels like too much risk, and for people willing to maintain it. For smaller amounts a single signer with a good metal backup is simpler and safer in practice, because most losses are user error, and multisig gives you more to get wrong.

MINI CHALLENGEPractise where it is free

Build a 2-of-3 multisig on testnet (Sparrow or Nunchuk, with any three keys), receive test coins from a faucet, and spend them back. How many signatures did you need to broadcast?

signatures
CHECK YOURSELF
1/4 In a 2-of-3 wallet, what happens if one key is stolen?
2/4 What must be backed up in addition to the seeds in a multisig?
3/4 Who is multisig for, according to the lesson?
4/4 Why use signers from different makers in a multisig?
pick an answer for each question

SOURCES

  1. Collaborative custody (River Learn glossary)
  2. Sparrow Wallet documentation: multisig
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