Multi-Signature Bitcoin

Multi-signature Bitcoin — multi-sig — is a security setup that requires more than one private key to authorise a transaction.

A standard Bitcoin wallet has one private key. One key, one signature, transaction approved. If that key is compromised, the Bitcoin is gone.

A multi-sig wallet requires a defined number of keys from a defined set. The most common setup is 2-of-3: three keys exist, and any two are required to sign a transaction. Other configurations exist — 2-of-2, 3-of-5, and so on.

The security advantage is significant. An attacker who compromises one of your three keys still can’t move your Bitcoin. A single point of failure is eliminated. Even if one device is stolen, one seed phrase is discovered, or one key is lost — the Bitcoin remains protected by the remaining keys.

Multi-sig also solves the inheritance problem more elegantly than single-key setups. Keys can be held by different trusted parties — an executor, a family member, a solicitor — and the combination required to access funds means no single party has unilateral control.

The tradeoff is complexity. Setting up multi-sig correctly requires more technical knowledge than a standard hardware wallet. It requires managing multiple devices or backups. A mistake in setup can result in inaccessible funds.

For most people holding Bitcoin: a hardware wallet with a properly stored seed phrase and an optional passphrase is adequate. The security is sufficient for amounts that most individuals hold.

For larger holdings — significant life savings, business treasuries, inheritance-focused setups — multi-sig is worth the additional complexity. It’s the standard used by institutions managing Bitcoin at scale.

Tomorrow: watch-only wallets — checking your balance without any risk.

— The Daily Bit