Top 10 Tips for Every Bitcoin Multisig Beginner

It was first published Unchained.com.

unchained is the official U.S. co-custodial partner of Bitcoin Magazine and an integral sponsor of related content published through Bitcoin Magazine. Visit our website to learn more about the services offered, custody products, and Unchained’s relationship with Bitcoin Magazine.

As a technical director on Unchained’s concierge team, I’ve fielded countless questions from clients about Bitcoin multisig. If you’re just starting to understand the benefits of multisig and how it works in a co-storage context, we hope these 10 tips answer some of your questions.

Bitcoin does not exist on the device

phrase hardware wallet Although it may seem like your Bitcoins reside within the wallet itself, this is not the case. Bitcoins do not reside on your device at all. In reality, the wallet generates and stores it. Key only. Wallets also make it easy to access your keys by connecting your device to a general-purpose computer or sharing information with your computer via a microSD card.

So where is Bitcoin? Bitcoin blockchain It is a ledger that tracks all transactions that have ever occurred and the balances of all addresses on the network. Instead of storing Bitcoin, hardware wallets protect and store the keys used to unlock or spend Bitcoin from those addresses.

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You can restore your seed phrase to another hardware wallet

If you respect current best practices and set up your Bitcoin hardware wallet, you will be asked to back up your wallet using 12 or 24 words. It’s usually backed up on a piece of paper that the manufacturer recommends protecting in case something happens to your wallet. These 12 or 24 words are the seed phrase established in Bitcoin Improvement Proposal 39 (BIP39).

Your seed phrase is like a “key to the castle.” This includes everything you need to recover and use the keys for all addresses protected by your seed phrase.

The great thing about the BIP39 seed phrase is that it is interoperable between hardware wallets that support the standard. This means you can restore your Bitcoin wallet backup (seed phrase) to a different brand of hardware wallet. If you first set up a Bitcoin wallet on Trezor and want to transfer to Coldcard, it’s as easy as importing 12 or 24 words.

read more: How to replace or upgrade your Bitcoin hardware wallet

No need to carry a hardware wallet to receive

With physical cash, you need to be physically present to transact with other parties securely and without trust. Bitcoin solves this problem in the digital world. If you want to receive Bitcoin but don’t have a hardware wallet handy, you can still have the payment sent to the appropriate address.

As mentioned above, Bitcoin does not reside in a hardware wallet. It exists on the Bitcoin blockchain. So as long as you or someone else is sending Bitcoin to an address that holds a private key that you control, you can move those funds at any time, whether or not they have physical access to the device. I can. If a Bitcoin is sent to an address that you know is under your control, it will arrive perfectly fine in the background without your involvement.

What this means: If you create a multisig wallet and store your hardware wallet or seed phrase in a secure location, you do not need to have physical access to it to deposit funds.

Devices used as keys in multisig can still be used as singlesig wallets

Multisig involves building a multisig wallet using public keys from multiple devices. Each device can also function as a standalone single sig wallet without any issues. If you follow the new standard process to create a multisig wallet, existing singlesig wallets will not be aware of the existence of your multisig wallet.

You can think of this as a group email address that forwards to multiple individual email addresses.

This means that if you wish, you can store small amounts of Bitcoin in your single-sig wallet while keeping your main assets in the built multi-sig wallet. Use that device as one of your keys.

Find your multisig deposit address

Bitcoin transactions are completely irreversible, so if you send your Bitcoins to the wrong address, they can be lost forever. Thankfully, you can use a hardware wallet to verify the multisig Bitcoin address on your device before transferring funds.

When you check the address on your device, you’ll see three things:

  1. The address is constructed correctly (i.e., 2-of-3 multisig, rather than 2-of-5, where the attacker adds two keys and actually controls the funds)
  2. The computer you are working on has not been compromised by malware that detects Bitcoin addresses and replaces them with the attacker’s address.
  3. The device holds the key to the address.

Before sending large amounts of funds to any address, whether single or multisig, you must verify the address on your device. As of this writing, Trezor and Coldcard support checking multisig deposit addresses on the Unchained platform.

read more: How do I find the receiving/depositing address for my hardware wallet?

Devices do not need to be physically together to sign

Multisig eliminates the need to have all your keys in the same place at the same time to use Bitcoin. That means he can sign a transaction in Austin with one key and the next day in Dallas with the other key. A transaction can only be broadcast after all required signatures have been collected (for example, two in a 2-of-3 multisig scheme).

This is a huge advantage over other Bitcoin custody models such as: Shamir’s Secret Sharing PlanThis allows you to distribute control by splitting your Bitcoin private key into multiple parts (secrets), but all parts must exist at the same time to recompile a single key and create a transaction. there is.

You can get your funds back even if you make a mistake with multisig

In all Bitcoin multisig configurations, meter (Number of keys required for signing) is below n (depending on the total number of keys in the quorum), you are protected against single points of failure and can recover funds even if one or more critical items are lost, stolen, or compromised.

In 2-of-3 multisig (where a co-custodial partner like Unchained holds the third key), there are scenarios where up to three items can be compromised before funds can no longer be recovered.

Best place to store backups of your Bitcoin wallet and seed phrase

Even though fault tolerance in multisig provides peace of mind, all of these scenarios Must be defended at all costs As below Best practices for seed phrases and hardware wallet storage, you always need to regain full control as soon as possible when important items are lost or compromised. And that brings us to #8…

read more: The ultimate guide to saving a backup of your Bitcoin seed phrase

You can replace the keys in your multisig configuration if needed

When using Bitcoin Multisig, it is important to replace this key in your Multisig if you lose your wallet or misplace your seed phrase. meter-of-n scheme. This can be done with any of the popular multisig wallets.

Even if just one key is compromised, your funds are not at risk with the most common multisig. meter-of-n In this scheme, replacing a compromised key gives you complete control over your funds and eliminates the possibility of it being used against you in the future.

In a co-custody model like the one we use here at Unchained, exchanging keys is easy. Simply log into our platform, select the compromised key, and instantly replace it with a new one. You can read the complete process of replacing or upgrading your hardware wallet at the link below. If you are already an Unchained client, please check the following: Knowledge base article.

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read more: How to replace or upgrade your Bitcoin hardware wallet

You can build multiple multisig wallets using the same device

As mentioned in #4 of this list, using a hardware wallet/seed phrase, both There is nothing wrong with building a single-sig or multi-sig wallet. Similarly, using a hardware wallet/seed phrase for multiple multisig wallets will not cause conflicts between them unless they are using the same one. Extended public keys (xpubs). This is typically expressed as: multiple accounts This is a feature included in most Bitcoin wallets.

Hardware wallets allow you to use different xpubs from different derivation paths. This is a technical way to represent a set of different Bitcoin keys on a hardware wallet generated by the same 12-word or 24-word seed phrase. This means you can create multiple multisig wallets derived from the same set of seed phrases/devices, such as using the same device for your personal vault and IRA vault. There may even be a safe deposit box!

Joint custody does not create a single point of failure

One of the common concerns we hear when starting multisig co-custody with Unchained is around platform dependence. If Unchained ceases to exist or experiences significant downtime, how will you recover your funds if your wallet was built using our tools?

Our multisig platform is designed to eliminate all single points of failure, including ourselves. Our platform is fully interoperable with established Bitcoin standards, so you can always regain access to your vault outside of the Unchained platform using compatible software, such as our open-source multisig coordinator. caravan, or a Bitcoin wallet like Sparrow or Electrum.just be safe Back up your wallet configuration file!

read more: How do I retrieve funds from my vault using Caravan?

It was first published Unchained.com.

unchained is the official U.S. co-custodial partner of Bitcoin Magazine and an integral sponsor of related content published through Bitcoin Magazine. Visit our website to learn more about the services offered, custody products, and Unchained’s relationship with Bitcoin Magazine.

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