Originally published on Unchained.com.
Unchained is the official US collaborative custody partner of Bitcoin Magazine and an integral sponsor of related content published through Bitcoin Magazine. For more information on the services offered, custodial products and the relationship between Unchained and Bitcoin Magazine, please visit our website.
There are many different ways to hold Bitcoin, and there is no perfect method that suits everyone in every situation. The amount of Bitcoin, how often it needs to be accessed, and other factors can determine which approach makes the most sense.
The resources and security requirements of individual bitcoin holders will differ from those of institutions. In this article, we'll examine how the custody strategies of these two groups compare, then uncover an important truth about the application of multisig.
Guard for individuals
For typical people looking to own their bitcoins, there are a number of tools to choose from. Depending on the situation, a simple singlesig wallet might be enough, with the ability to add modifications such as copying seed phrases or BIP 39 passphrases. We created an article detailing the different configurationsby comparing their strengths and weaknesses.
People who are less concerned with making frequent withdrawals and looking for larger amounts for long-term savings should consider a multisig wallet. Multisig offers safety threshold, which can protect users against single points of failure, ensuring that no money will be lost if any component of the setup is destroyed, misplaced or stolen. Achieving a security threshold is crucial for anyone wanting to protect a significant amount of funds.
There are a few other threshold security methods besides multisig, but they are less suitable for the average person. Shamir Secret Sharing (SSS) is a method that still leads to temporary single points of failure during initial setup and during a removal procedure. Multi-Party Computation (MPC) is another method that is extremely complicated to use safely. You can learn more about this in our article on threshold security models.
Multisig can be combined with SSS or MPC to create multi-level thresholds. Multi-level thresholds refer to a blockchain-level threshold (multisig) as well as a key-level threshold (SSS or MPC). Combining these concepts, a fundamental threshold of keys serves as the primary security for bitcoin holdings, and each key can be protected against compromise using its own threshold. Despite a more complex structure, two levels of thresholds offer obvious advantages to guarantee maximum security for bitcoin.
For a single person trying to protect their bitcoin, this approach is widely considered unnecessarily complex. However, if the individual enters a collaborative care partnership with one or more institutions key agents able to deploy SSS or MPC, this increased layer of security becomes more easily accessible.
Guard for institutions
For businesses, governments, and other institutions that want to secure a Bitcoin treasury, it would not be appropriate to employ some of the custody strategies used by typical individuals. If several people are responsible for large sums of money, more rigorous controls are necessary. Institutional-level Bitcoin custody requires a security threshold at the bare minimum.
Multisig, SSS and MPC are the choices available to meet this requirement. Although MPC is by far the most complicated to use safely and is not recommended for individuals, an institution with a team of experts might consider it. However, the extra effort required to configure MPC does not mean it is a superior option to basic multisig. All three models have trade-offs, as discussed in our previous article comparing them.
If an institution wants to achieve the highest possible level of security, it should consider using tiered thresholds. In this arrangement, the foundation is multisig, which allows a threshold of several distinct private keys in order to access the funds. Several different key company agents can be responsible for each key, minimize counterparty risk of any single depository. In addition, each key agent can apply its own security threshold for the key they are responsible for, using SSS or MPC. This protects the key of any single agent within the key agent enterprise.
Multisig has a higher security cap
As you may have noticed in the charts above, there is a distinct difference between the upper security limits of singlesig and multisig. With singlesig, there is only one key that can have a threshold applied to it, creating a single level threshold. Multisig can also serve as a single-level threshold, but also go further: it can form the basis for multi-level thresholds.
Therefore, large Bitcoin holdings that use a monosig foundation rather than a multisig foundation – which can often be observed by examining the address type-have the possibility of a security upgrade. Multi-level thresholds can unlock a robust system multi-institutional care structure which distributes risks between key agents. Unleashed private wealth and corporate clients have the choice of several high-end key agents to set up this structure. Learn more and book a consultation!
Originally published on Unchained.com.
Unchained is the official US collaborative custody partner of Bitcoin Magazine and an integral sponsor of related content published through Bitcoin Magazine. For more information on the services offered, custodial products and the relationship between Unchained and Bitcoin Magazine, please visit our website.