- >Ask CryptoVantage: Should I Use “Multisig” to Store My Bitcoin?
Ask CryptoVantage: Should I Use “Multisig” to Store My Bitcoin?
Multisig can be a very secure way to store your bitcoin, however it takes some technical understanding in order to use it properly and decrease risk. For most users, especially beginners, multisig is not the best option for storing your bitcoin. In this article we provide a brief overview of what multisig is, how it works, and some of the common multisig options available.
Billy Garrison | Jan 20, 2021
How Multisig Works
Most bitcoins are stored in wallets that only require a single private key to “unlock”. So, as long as you have access to that private key you can spend the coins. As you can imagine, this poses a risk to those who own a significant amount of bitcoin because a) if you lose that key, you lose access to your bitcoin forever, and b) it makes it easier for someone to find or steal that single private key and gain access to your bitcoin.
Under the hood, every bitcoin in existence is locked by a smart contract, which is a contract that is stored in the blockchain that dictates what the requirements are to gain access to your bitcoin. The smart contract for bitcoins stored on single private key wallets requires the spender to provide one cryptographic signature in order to prove that they own the bitcoin associated with their public key. Another name for these types of wallets is “singlesig” (or “single signature”) wallet, because to spend bitcoin you must use one private key to produce one signature.
Multisig is a different type of bitcoin smart contract that requires the spender to provide a predetermined number of signatures in order to move the coins. If you research multisig wallets, you will probably come across the term “m-of-n”, where n is the number of possible private keys, and m is the number of keys required to be provided in order to move the coins. A common example of an m-of-n requirement is a two-of-three multisig wallet, which requires two out of three possible private keys in order to spend the bitcoin.
Shared Custody Multisig
Typically, shared custody setups include a two-of-three multisig contract, where you control two of the keys, and the company controls the third. Even though the company has one of your three private keys, you still have full control of your bitcoin because you have two of three of the keys, which satisfies the multisig contract. You are also protected from the company stealing your funds because they only have one of the three keys, which does not satisfy the contract.
The benefit of a company holding one of your keys is that if you happen to lose access to one of your two keys, then you can still recover your funds by combining your remaining key with the key the company possesses. All you need to do is prove your identity to the company.
There is a lot of work being done to improve the usability of multisig, however it is still in development. Over the next couple years it will probably become best practice for everyone to store funds using multisig, but right now for the average user the risks associated with using multisig outweigh the added security.
For this reason, we do not recommend using multisig unless you are technically savvy and confident that you will not make a mistake. Instead, for the average user we recommend storing your bitcoin on either an old computer that is never connected to the internet, or a singlesig hardware wallet.
For more information about singlesig hardware wallets, take a look at our article “Do I Really Need a Hardware Wallet to Store Bitcoin?”. However, if you own a lot of bitcoin or want to try out multisig to gain experience, we recommend using a shared custody multisig solution. As we recommend with trying any new bitcoin wallet, start out with a small amount of bitcoin as you become comfortable with using the wallet.