Originally published in bitcoin-multisig-tips/?utm_campaign=btcmag-launch”>Unchained.com.
Unchained is the official US collaborative custody partner of bitcoin Magazine and an integral sponsor of related content published through bitcoin Magazine. To learn more about the services offered, custody products, and the relationship between Unchained and bitcoin Magazine, please visit our website.
As CTO of Unchained's Concierge team, I've answered countless customer questions about bitcoin multisig. If you are just beginning to understand the benefits of multi-signature and how it works in a collaborative escrow context, I hope these ten tips address some of your questions.
bitcoin doesn't live on your device
The phrase hardware wallet You may make it look like your bitcoins live inside the wallet, but that's not the case: bitcoins are never on your device. In reality, your wallet generates and stores your keys only. Your wallet also makes key access easy to use, whether connecting your device to a general-purpose computer or sharing information with your computer via a microSD card.
So where does bitcoin live? bitcoin bitcoin.it/wiki/Block_chain”>block chain It is a ledger that keeps track of every transaction that has occurred and the balances of every address on the network. Instead of storing your bitcoins, your hardware wallet protects and stores the keys used to unlock (or spend) bitcoins from those addresses.
You can restore your seed phrase to another hardware wallet
When you set up a bitcoin hardware wallet that respects current best practices, you should be prompted to back up your wallet with 12 or 24 words, usually on a piece of paper that the manufacturer suggests protecting in case something happens to you. happen to your wallet. These 12 or 24 words are your seed phrase, as stated in the bitcoin Improvement Proposal 39, or BIP39.
bitcoin-seed-phrase/?utm_campaign=btcmag-launch”>Your opening phrase is like the “key to the castle.” contains everything you need to recover and use a key for all addresses protected by the seed phrase.
The nice thing about BIP39 seed phrases is that they are interoperable between hardware wallets that support the standard, meaning you can recover your bitcoin wallet backup (seed phrase) to another brand of hardware wallet. If you initially set up your bitcoin wallet on a Trezor and want to upgrade to a Coldcard, it's as simple as importing those 12 or 24 words.
Read more: bitcoin-hardware-wallet/?utm_campaign=btcmag-launch”>How to replace or upgrade a bitcoin hardware wallet
You do not need to have your hardware wallet with you to receive
With physical cash, you must be physically present to transact with another party securely and trustlessly. bitcoin solves this for the digital world. If you want to receive bitcoins but don't have your hardware wallet on hand, you can still request a payment to be sent to the appropriate address.
As mentioned above, bitcoin does not reside in your hardware wallet; lives on the bitcoin blockchain. For that reason, as long as you or someone else sends bitcoin to an address you have the private keys to control, you can always move those funds regardless of whether you have physical access to your device. If bitcoin is sent to an address you know you control, it will arrive perfectly in the background without your involvement.
What this means for you: If you create a multi-signature wallet and store your hardware wallets or seed phrases in secure locations, you don't need to have physical access to them to deposit funds.
A device used as a key in multi-signature can still be used as a single-signature wallet
Multisig involves building a multi-signature wallet using the public keys of multiple devices, each of which could also serve as a stand-alone single-signature wallet without any problems. When you create a multi-signature wallet following emerging standard processes, pre-existing single-signature counterparties have no idea that the multi-signature wallet exists.
You could think of it as a group email address that forwards to multiple individual email addresses.
This means that if you want, you can store smaller amounts of bitcoins in a single-signature wallet, all while keeping your main wealth in a multi-signature wallet built using that device as one of the keys.
Confirm your multi-signature deposit address
bitcoin transactions are completely irreversible, meaning that if you send your bitcoins to the wrong address, you can lose them permanently. Fortunately, you can use hardware wallets to verify your multi-signature bitcoin address on the device before sending funds.
Verifying your address on your device confirms three things:
- that the address was created correctly (i.e. that it is 2 of 3 multisignature, for example, and not 2 of 5 where an attacker added two keys and actually controls the funds)
- that the computer you are working on is not compromised with malware that finds and replaces bitcoin addresses with an attacker's address, and
- that your device has a key for the address.
You must verify the address on your device before sending significant amounts of funds to any address, whether monosignature or multisignature. At the time of writing, Trezor and Coldcard support multi-signature deposit address verification on the Unchained platform.
Read more: How do I verify the receive/deposit address in my hardware wallet?
You don't need your devices physically together to sign
With multisignature, you don't need to have all your keys in the same place at the same time to spend bitcoins. That means you can sign a transaction in Austin with one key and sign it a day later in Dallas with the other. The transaction can only be transmitted after all necessary signatures have been collected (two in a 2-of-3 multi-signature scheme, for example).
This is a significant advantage over other bitcoin custody models such as Shamir's Secret Sharing Planwhich allows you to distribute control over your bitcoin private key by dividing it into multiple parts (secrets), but requires all parts to be present at the same time to recompile a single key and create a transaction.
You can make a mistake in multisignature and still get your funds back
In all bitcoin multisignature setups where meter (the number of keys needed to sign) is less than north (the total number of keys in the quorum), you are protected against single points of failure and can still recover your funds in the event that one or more critical items are lost, stolen, or otherwise compromised.
There are scenarios in 2 of 3 multisig (with a collaborative escrow partner like Unchained holding the third key), where up to three items could be compromised before it is impossible to recover your funds.
Although multi-signature fault tolerance provides peace of mind, all of these scenarios we should still be protected at all costs by following bitcoin-seed-phrase-backups/?utm_campaign=btcmag-launch”>Seedphrase and Hardware Wallet Storage Best Practices, and you should always regain full control as soon as possible in case any of your critical elements are lost or compromised. And that brings us to number eight…
Read more: bitcoin-seed-phrase-backups/?utm_campaign=btcmag-launch”>The Ultimate Guide to Storing Backups of Your bitcoin Seed Phrases
You can override a key in your multi-signature setup if necessary
When using bitcoin multisig, if you ever lose a wallet or misplace a seed phrase, it is important to replace this key in your multisig. meter-of-north scheme. You can do this with any of the popular multi-sig wallets.
Even if a single compromised key does not put your funds at risk in most multi-signature signatures meter-of-north schemes, replacing a compromised key will ensure that you regain full control over your funds and eliminate the possibility that the key could be used against you in the future.
In a collaborative escrow model like the one we use here at Unchained, replacing a key is easy. You can simply log in to our platform, choose the key that has been compromised, and quickly replace it with a new one. You can read the full process for replacing or upgrading a hardware wallet at the link below, and if you're already an Unchained customer, check out our knowledge base article.
bitcoin-magazine/?utm_campaign=btcmag-launch”>
Read more: bitcoin-hardware-wallet/?utm_campaign=btcmag-launch”>How to replace or upgrade a bitcoin hardware wallet
You can build multiple multi-signature wallets using the same devices
As we mentioned in number four on this list, using your hardware wallets/seed phrases to both a singlesig wallet and building a multisig wallet does not cause any problems. Similarly, using your hardware wallets/seed phrases for more than one multi-signature wallet does not cause a conflict between those wallets as long as you are not using the same one. extended public keys (xpubs). This is usually represented as a multiple accounts feature in most bitcoin wallets.
Hardware wallets allow you to use different xpubs from different derivation paths, which is a technical way of saying a different set of bitcoin keys in your hardware wallet generated by the same 12 or 24 word seed phrase. This means you can create multiple multi-signature wallets arising from the same set of initial phrases/devices, such as using the same devices for a personal vault and an IRA vault. Maybe even a loan vault too!
Collaborative custody does not introduce a single point of failure
When getting started with multi-sig collaborative custody at Unchained, a concern I often hear relates to dependency on our platform. If Unchained were to cease to exist or experience significant downtime, how would you recover your funds if your wallets were built with our tools?
Our multi-sig platform is designed to eliminate all single points of failure, and that includes ourselves. As our platform is fully interoperable with established bitcoin standards, you can always regain access to your vault outside of the Unchained platform with compatible software like our open source multi-signature coordinator. Caravan, or bitcoin wallets like Sparrow or Electrum. Just make sure you do it safely. backup your wallet configuration file!
Read more: How can I recover funds from my vault using Caravan?
Originally published in bitcoin-multisig-tips/?utm_campaign=btcmag-launch”>Unchained.com.
Unchained is the official US collaborative custody partner of bitcoin Magazine and an integral sponsor of related content published through bitcoin Magazine. To learn more about the services offered, custody products, and the relationship between Unchained and bitcoin Magazine, please visit our website.
