What Should I Know About Multisig Wallets?

So, if we're talking about a three-key multisig wallet, all three key holders need to work together to unlock it, right? But what happens if one of them can't access their key because they forgot where they put it, or they get kidnapped, or worse, pass away? How do the other two get to the coins then?

Yes if it is 3-3 multi sig wallet, the three people ost be available in order to make use of the wallet and if one dies or kidnapped then it might be difficult to have access to the wallet. Only the two holders can also have access to the wallet, if it is 2-3 multi sig wallet because the least is two people  will be given access to the wallet without the third person. The third person is not that important. It is just like a bank where you save a society or company money and open an account with them there will be two important signatories that must be available to access the wallet.

For spending fund from a multi-signature address, all private keys aren't necessarily required. Note that there are n private keys for a m of n multi-signatue address and m of them are required for making a transaction. It may worth mentioning that all public keys are always required. For example, if you have a 2 of 3 multi-signaure wallet, 2 of master private keys and the master public key dervied from the third master private key are required. The two signers will need the public key (or the master public key, if it's a HD wallet) of the third person.

If it's a 3 of 3 then without the guy who have the 3rd key you can't able to sign a transaction unless you set it to 2 signatures it 2 of 3 multisig. If I were you before you enter to multi-sig wallet do some experiments first you can able to make multiple sigs on a single PC just to learn how it works. Or watch this video below how to make a multisig wallet and how it works. - https://www.youtube.com/watch?v=GJ31v-7g4Qo

Yes. In that case, it would be no different than the one-key wallet situation if the key holder is incapacitated - that wallet is lost forever.  Thats why 2-of-3 (or even 2-of-4) multi-signature wallet setups are much more common. In these cases, only two private keys are needed to access the wallet, providing security even if one of the keys is compromised. But even a 3-of-3 multi-sig wallet can have a purpose. Lets say all three keys are owned by one person and stored in physically different locations. If any of the keys are stolen or otherwise compromised (or even two of them), your funds in the wallet will still be safe.

It is safe, yes but the problem is if your multi-sig wallet is 3-of-3 and you lose access to one of these keys then 2 keys would not be enough to sign a transaction you need to provide the 3rd signature to sign the transaction that is a nature of 3of3 multi-sig it requires 3 signature to sign a transaction. Unless if it's set to 2-of-3 multi-sig you can able to sign a transaction without the 3rd key.

Yes multi sig wallet is good for a personal use too, but personally I don’t like the idea of it been a 3-3 multi sig wallet Simply because of redundancy. The number of co-signer should be at least less than the total keys on the wallet. But my main reason for it not be a very good set up is that you need to have three different devices to set this up. Using a single device or two will reduce the security purpose of it because that will mean that you have two keys on one device which if compromised will lead to those two keys been exposed. So it definitely needs more than one device otherwise it is a good idea.  A better security tips might be adding passphrase and storing the two phrases(pass phrase and seed phrase) in different locations.

Unless am missing something, I don't see how extending a seed with passphrase can be more secure/safer than creating a multi-sig wallet on a single device, tbh! Correct me if am wrong, but if that device is compromised, then whoever can get access to the multi-sig wallet seeds can also get access to the wallet seed with the passphrase. At least, in the first scenario there is a possibility to generate the seeds on different devices. While a seed and the passphrase must be generated on the same device.

No a multi sig is actually not bad or pass phrase will be better, my suggestion of passphrase was coming not from the angle of the Device been compromised but rather physical attack of the multisig seed phrases which the post I quote was about. He sees the that should the seed phrase for the two co-signers be stolen you have one in different locations to turn to. And then my suggestion is wouldn’t a pass phrase be better even If the seed phrase got stolen they still wouldn’t get access with stolen seed phrase. That was what brought the passphrase idea

For 3-of-3, there's nothing they can do since the access is not enforced by the wallet that they are using (not client-side) or a central authority. It's what's indicated in the "redeem script" of each UTXO (Unspent Transaction Output) associated with their MultiSig wallet. For 3-of-3 MultiSig, the redeem script is something like this:OP_3 (required number of signatures) <pubKey1> <pubKey2> <pubKey3> OP_3 (number of cosigners) OP_CHECKMULTISIGIf they can't fulfil number of required signatures indicated in the script which only the private key pairs of the indicated publics key can create, the UTXO can't be spent and no Bitcoin technical support or Bitcoin developer can help them to gain access to their bitcoins. Depends on the script used, based on the example above, it's more common to use something like this:OP_2 <pubKey1> <pubKey2> <pubKey3> OP_3 OP_CHECKMULTISIGThe "OP_2" on the start indicates that it only requires 2 signatures (2-of-3 MultiSig). In that case, the "remaining two guys" still have access to their bitcoins.

It's important to note that this is a feature, not a "bug". If you choose to create a 3-of-3 multisig, you want the other 2 guys to be unable to access the coins without you. If that's not what you want, you should use something else than 3-of-3.

Yes, that is the downside. But like I said, it is no different than having a single key wallet and you lose access to it.  OK sure, I guess you could say that statistically you have a higher chance of losing one out of three keys than losing a single key, but there is nothing stopping us from having multiple copies of each individual key for backup purposes.

You shouldn't say "three-key" wallet because that is ambiguous. The correct terminology is '3-of-3 multisig if all three keys are required to spend funds, or something less like '2-of-3 multisig' if only two of those keys are required. That being said, the 2-of-3 is more robust than 3-of-3 multisig. If you have more participants then 3-of-5 is even better.

There are different instances where multisig wallets are used. It all depends on the number of parties involved and the nature of the relationship. Some use multisig for business while some only use it for joint personal ones. If it is used in a business aspect such as escrow services where a transaction can only be made if certain clauses are met and thus shall not need all parties to be able to make a transaction. In this case, a 2-of-3 multisig is the one to use. If it is a joint wallet with a partner or with family then maybe it should require all parties to participate to conduct a transaction. If you will require all parties to participate then you should properly prepare beforehand. Create backups and store them in a safe and secure location only to be accessed in times that one party can not access their keys. Maybe there is only one other person that knows where to access the keys of the unparticipating party. That person can not then know or have access to more than 2 keys to ensure security.