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If you haven’t yet read our bolg: Self Custody and Paper ETFs - Part 1 and Self Custody (SingleSig) - Part 2, its definitely worth reading those blogs first as a recap before getting into MultiSig.
As a quick recap, in part 1 of this series, we walk through why holding Bitcoin in self custody (without counter party risk) is so important and in part 2, we looked at various options and solutions available within the SingleSig framework.
“If you don’t believe me or don’t get it,
I don’t have time to try to convince you, sorry
”
We now direct our focus towards exploring the capabilities and benefits of MultiSig technology. By transitioning your attention to MultiSig, the aim is to further enhance your security. MultiSig minimises potential vulnerabilities and we are excited to delve deeper into the features and advantages that MultiSig has to offer, and we are confident that this strategic shift will contribute positively to your bitcoin security operations.
Multiple Signatures (MultiSig)
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MultiSig offers better security than SingleSig by using multiple unique keys to protect bitcoin from loss and theft. With options like 2-of-3, where two keys are required to sign off on a transaction, this setup is ideal for most individuals and businesses. Unlike some “make shift solutions” discussed in part 2, keys in a MultiSig wallet can sign independently, making it more secure and convenient for managing a bitcoin treasury with different key holders.
Things to consider
While MultiSig offers robust security measures to protect your assets from attackers, it does come with the downside of reduced convenience for the end-user.
It is important to note that transactions involving MultiSig have historically incurred higher mining fees compared to SingleSig transactions. However, with the recent activation of the Taproot soft-fork, there is potential for a shift in this trend. As new technologies leveraging Taproot emerge and adoption of Taproot increases, it is anticipated that MultiSig transactions will align with the fee structure of SingleSig transactions.
This means that in the future, utilising MultiSig for your bitcoin transactions may become more cost-effective and efficient. As technology continues to evolve and improve, we are excited about the possibilities that lie ahead for MultiSig security.
Doing it yourself or using a custody business
Setting up a MultiSig wallet can be more complex than a traditional SingleSig wallet, requiring users to keep track of multiple keys (seed-phrases) and wallet configuration details. This can be overwhelming for individuals who are new to bitcoin and may not have the technical expertise to navigate the setup process on their own. Without support, attempting MultiSig on your own can be a daunting task.
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Fortunately, there are collaborative custody businesses that offer education and support for individuals looking to use MultiSig wallets. These businesses provide the necessary guidance and resources to help users feel comfortable and confident with MultiSig technology. By partnering with a collaborative custody service, users can benefit from simplified setup processes, reduced maintenance requirements, and support for passing on bitcoin to beneficiaries. Additionally, collaborative custody services offer users the ability to maintain control over their bitcoin assets while also accessing financial services like trading and loans. This combination of security, support, and access to financial opportunities makes collaborative custody a compelling option for individuals looking to utilise MultiSig technology in a user-friendly and efficient manner. If this is a option you are looking at, a good place to start is Unchained.com, but just remember to factor in privacy considerations as most of these service will need you to KYC.
“Two of Three” or “Three of Five” MultiSig Setups
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Setting up a MultiSig vault involves making several important decisions, but one of the key factors to consider is selecting the appropriate quorum. The most commonly used options for securing bitcoin in cold storage are 2-of-3 and 3-of-5 configurations. While 3-of-5 can provide additional redundancy, it also introduces more complexity than is necessary for most users.
It's important to recognize that the decision to use a higher quorum can result in increased security, but it can also lead to inefficiencies and unnecessary complications. For example, advocating for a 4-of-7 threshold could be seen as excessive by some, and the argument can be extended to 5-of-9, and beyond.
Which method do you choose?
SingleSig or MultiSig, that is the question. Then within each there are even more choices, each one with various tradeoffs associated with the different structures for holding bitcoin in self-custody. It's important to note that there is no one-size-fits-all approach when it comes to determining the best model for you. Understanding the differences between SingleSig and MultiSig is essential in making this decision, as each excels in different areas.
When considering whether SingleSig or MultiSig is the better option for you, it's crucial to identify your preferences and priorities. SingleSig and MultiSig have their own strengths and weaknesses, which is why some may find that utilising both can be advantageous. Instead of viewing these models as competitors, they can actually complement each other quite well.
For instance, you might opt for a MultiSig wallet for storing your high-security, long-term bitcoin savings, while also utilising a SingleSig wallet for holding smaller amounts for day-to-day transactions. This could involve using a mobile wallet that supports lightning for quick and convenient transactions.
Need help deciding or want to discuss your setup
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If you're interested in the benefits of setting up a MultiSig or improving your SingleSig setup, where you retain full control over our bitcoin while also gaining access to our team who can help you with technical questions and other bitcoin services, you may want to consider one of your paid Self-Custody consultations. Our team can provide you with more information and help you determine the approach that aligns with your goals and needs.
We’ve put together an easy to understand ebook which includes all the SingleSig and MultiSig options and includes:
A Tradeoff Matrix to help you choose a setup
A simple questionnaire to complete to help guide the initial consultation
We will send you our ebook, A guide to Bitcoin Self-Custody, when you’ve signed up for any of our paid Self-Custody consultation services (follow button below).
Alternatively, you can purchase A guide to Bitcoin Self-Custody (without a consultation) from our store at the following link - here
“Your most expensive advice is the free advice you receive from your financially struggling friends and relatives.”
If you are not ready to hold Bitcoin yourself, an option while you “study bitcoin”, is to look at our "platform verified” strategy - Rational Active Allocation, you can do so with as little as £20 per month. This is a custodial solution aimed at those just starting their Bitcoin journey.
DISCLAIMER
This publication is general in nature and is not intended to constitute any professional advice or an offer or solicitation to buy or sell any financial or investment products. You should seek separate professional advice before taking any action in relation to the matters dealt with in this publication. Please also note our disclosure here
