Shared schemes
While multi-key setups can be used for personal use, if several people need to share funds multiple keys become a necessity. You will often see this referred to as multi-sig setups, stemming from the fact that multiple keys are needed to sign a transaction in order for it to go through and be valid.
The use cases for shared schemes include spouses managing a joint account, groups, organizations or companies managing their funds, as well as inheritance planning. It can also be used for governance of an organization, with transactions used not to transfer funds but to record, or vote, for decisions.
Shared multi-key
As we saw with multi-key setups for personal use, a multi-key wallet has several controlling keypairs attached, or what is often called co-signers. The number of keys and required co-signers will depend on the use case. With spouses sharing a joint account, a simple 1-of-2 multi-key setup might suffice, meaning there are two keys but only one is required to sign for a transaction to be valid. At the other end of a spectrum a company might require a more complex 3-of-5 setup, requiring three of the five co-signers to approve any transaction.
Just like with personal schemes, external signing devices can be used to hold one or several of the keys used for a shared multi-key setup. While this can increase security if managed correctly, the same caveat applies in terms of adding significant complexity.
Several users can control the wallet with a combination of the keys.
How it works
A wallet or coordination application initiates a multi-sig wallet, choosing the number of total keys, and the number required to sign transactions. It then needs to add private keys from the other user’s wallet. It can then complete the creation process. For any future transaction from the multi-sig wallet the required amount of co-signers need to sign (using Partially Signed Bitcoin Transactions - PSBT from BIP174) before any transaction is valid.
Pros
- Allows several people to access and control a bitcoin wallet
- Can tailor requirements for multiple co-signers and access
- High security, if setup well
Cons
- Has significant complexity and op-sec burden for multiple private keys, each of which might need a good manual backup scheme
Best practice
When to use
- When funds need to be accessed by several people or an organization
- When users are likely to be very knowledgeable or be guided through setup and use
When not to use
- (No other option currently for shared access scenarios)
Variations
- The number of required co-signers and attached keypairs
- Key storage devices
Do’s
- Make sure the multi-key setup itself is backed up properly, including x-pubs for all the participating keys, fingerprint and derivation.
Products that use this scheme Few tailor-made products exist for shared wallets, but any wallet application that supports multi-key setups can be used to initiate a shared wallet.
Next up, common principles we should strive to follow.