The core of Bitcoin’s value proposition is the ability to self-custody through the simple act of creating a wallet where you hold the only copy of the keys. When you self custody your funds, you are free of any third-party risk, but you will face a different set of obstacles. If you ever lose your keys, write them down incorrectly, or expose your keys to someone online or offline, you can and will end up losing your funds.
In self-custody, you are your own worst enemy.
While the act of creating a single signature wallet is fairly straightforward, its as simple as writing down 12 – 24 words depending on your setup; protecting those seed words is another story, and we’ve seen countless examples of people who failed to do proper self custody checks and end up losing their Bitcoin.
One way to improve your self-custody security is to distribute your keys; instead of having 1 set of seed words that allow you to create a wallet and sign a transaction, you split the access of this wallet into three sets or five sets of keys.
A Bitcoin multi-sig wallet is a type of wallet that requires multiple signatures to authorise a transaction. This means that in order to send Bitcoin from a multi-sig wallet, you need to have the approval of multiple people or devices (keys). This adds an extra layer of security to your Bitcoin, making it more difficult for someone to steal your funds without your consent.
In an example of a two-of-three multi-sig, you only need two of your three sets of keys to access your funds. If you lose one or one is exposed online or offline, you can still keep your funds safe by signing with the other two sets.
Multi-sig wallets bring an added layer of protection, but with it comes an added layer of complexity that many new users still need to be ready for.
How do multi-sig wallets work?
Multi-sig wallets work by using the same set of public and private key cryptography as your standard wallet. The difference is when you create this multi-sig wallet, instead of having one set of keys producing a signature, you need multiple for a transaction to be confirmed as an authentic request.
You effectively split the key signing process among several wallets/signing devices/seed phrases.
In a multi-sig wallet, you can determine how many private keys are required to commit a transaction on-chain, and in order to authorise a transaction, you need to have the approval of a certain number of keys. For example, you could have a 2-of-3 multi-sig wallet, which means that you need the approval of 2 out of 3 keys in order to authorise a transaction.
Why would you use a Bitcoin multi-sig wallet?
A single-signature wallet has its merits, and you can operate with it for many years; without issue. You could also distribute your funds over multiple single-signature wallets if you’re afraid of losing one set of keys, but with this method, you also increase your attack surface because you need to protect multiple keys, and each one leads to a set of funds.
Multi-sig allows you to create different custody operations that are more challenging to compromise and allow more room for errors.
The most popular reasons why you should use a Bitcoin multi-sig wallet are:
- First, it can add an extra layer of security to your Bitcoin. As mentioned above, it makes it more difficult for someone to steal your funds without your consent.
- Shared ownership or risk: Multi-sig wallets can be used to share control of your Bitcoin with other people. For example, you could use a multi-sig wallet with your spouse or business partner so that you both have to approve transactions.
- Flexibility: Multi-sig wallets can be configured to require any number of signatures. This gives you the flexibility to choose the level of security that you need.
- Failsafe: Life happens, and we can’t always plan for every situation; if one set of keys is destroyed or lost, recovery is much easier than trying to guess your old seed phrase or recover a partial seed phrase.
- Geographic disbursement: Suppose you’re living in a hostile part of the world; if your key is ever stolen or forcibly removed from your possession, you could still recover your funds with keys stored in other parts of the world or with other trusted third parties.
- Operational security: In a business, you don’t want to trust a single person to handle funds, and with a multi-sig, you have the surety that several parties are needed to conspire to steal funds.
Drawbacks of using a Bitcoin multi-sig wallet:
Overall, Bitcoin multi-sig wallets can be a good option for people who want to add more security to their Bitcoin. However, setting one up comes with its hurdles.
- Complexity: Multi-sig wallets can be more complex to set up and use than single-sig wallets, especially if you’re using different signing devices for the storage of each key.
- Cost: Multi-sig wallets may incur additional fees, depending on whether you use a custody provider as one of your key quorum holders. Multi-sig can also cost more depending on if you’re using hardware devices; you would need to purchase one for every key you wish to create and store.
- Risk: Losing one key isn’t difficult, and losing several keys is more challenging but not impossible. If you lose the majority of your private keys, you may lose access to your funds.
- More moving parts: Having to figure out different places to store your keys can be a pain, and storing them together defeats the purpose of a multi-sig since you’re handing a thief easy access to your funds, regardless of the additional barriers mult-sig offers.
Multi-sig is made a little easier with Frostsnap.
To address the complexities of setting up a multi-sig, a team of Bitcoin developers and enthusiasts have introduced a new method of multi-sig called the “Frostsnap” method. Frostnap uses FROST (Flexible Round-Optimized Schnorr Threshold) (Komlo and Goldberg 2020) signatures. With FROST, parties each have their secret key share, but together they control a single public key.
FROST is an entirely off-chain protocol, and The multi-signature’s threshold nature is formed through mathematics and communication rounds between participants. This new implementation is set to provide multi-sig wallets with a range of new capabilities, transforming them from a static tool to adaptive systems.
Frostsnap uses our experimental FROST implementation, with all the code being completely free and open-source under the MIT license.
Reshaping the Multisig Landscape
The newly-introduced Frostsnap method proposes a solution to some of the pain points of the current multi-sig offerings, namely in cost, complexity and management. Frostsnap has drawn comparisons to a “Bitcoin multi-sig centipede” due to its flexibility and adaptability to create a physical daisy chain of devices, as presented in its example below.
In this illustration, FrostSnap is used to connect devices physically, each holding keys to create a multi-sig. Still, there is no reason why other DIY devices, such as SeedSigner, Nostr Signing Device or popular hardware wallets such as Ledgers, Trezors, and ColdCards, couldn’t be part of the multi-sig as long as they support the software.
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Maliable multi-sig
Script multi-sigs are fixed, so once you create them, you can only add signers by creating a new wallet and moving funds, which can prove costly and time-consuming. With FROST, you can add or remove signers after key generation while keeping the key the same.
Frostsnap-compatible devices within the daisy chain be replaced, or the federation can be modified to require a different number of devices to confirm a transaction if a device is compromised.
Security and Flexibility
Frostsnap multi-sig wallets offer customisation after you’ve created the setup meaning users can back up information onto new devices, making future device swaps easier. If a device in your chain breaks or is lost, you could migrate to a new device to maintain your multi-sig without needing to move funds to a new one.
It also allows multi-sig signers to dismiss any stolen device with a threshold number of signatures, providing further security against thieves should one of your keys be exposed or a physical device is stolen.
Keeping on-chain costs down.
Script multi-sig can be costly compared to single-signature wallets due to the additional data required. A FROST wallet will pay the same fees as single-signature wallets. No matter the number of devices or the threshold of your key, the transaction fees will be the same.
Privacy with Frostsnap
Frostsnap provides increased privacy through Taproot, which can consolidate signature-related data, reducing on-chain fees and effectively concealing the existence or attributes of a Frostsnap wallet. To anyone looking at your transactions on-chain, it has the same footprint as a standard transaction; no one will know that you’re using a different security model.
The future of Frostsnap
The Frostsnap method of wallet creation and management applies not only to on-chain uses but can be combined with other protocols. Forstnsap could create multi-sig wallets involving Nostr key signing with Multi-sig, a federated mint, Bitcoin miniscript, or a Lightning Network channel.
The Frostsnap team aims to create an open standard that vendors could implement, enabling different devices to be part of a FROST multi-sig wallet, so if you’ve already committed to buying a ColdCard, Blockstream Jade or a BitBox, it could become part of your Frostsnap setup in the future.
So don’t freak out about buying new devices; wait to see which manufacturers will support Frostsnap before jumping the gun.
Do your own research.
If you want to learn more about Frostnap for Bitcoin, use this article as a jumping-off point and don’t trust what we say as the final say. Take the time to research, check out their official resources below or review other articles and videos tackling the topic.
