When you decide to hold your own Bitcoin, you take control away from third parties and eliminate custodial risk. This approach, known as self-custody, means you alone manage the private keys that control your assets. As the popular saying goes, “not your keys, not your coins.”
Choosing how to self-custody is the next critical step. While hardware wallets are widely regarded as the most secure method for managing private keys, the setup within those devices—specifically, whether you use singlesig or multisig—greatly impacts your security, convenience, and resilience against loss or theft.
Understanding Singlesig Wallets
A singlesignature (singlesig) wallet is the simplest and most traditional form of Bitcoin self-custody. It requires only one private key to authorize transactions. This method is straightforward and accounts for the majority of Bitcoin holdings today.
However, its simplicity is also its greatest weakness. With just one key, you face a single point of failure. Lose that key, and you lose your Bitcoin. If someone else obtains it, your funds can be stolen instantly.
A private key is typically represented as a seed phrase—12 or 24 words generated by your wallet. Safeguarding this phrase is essential, but accidents happen. Natural disasters, human error, or theft can compromise even the most carefully stored backups.
Many users attempt to enhance singlesig security through various modifications. These methods range from simple improvisations to more standardized technological solutions. While they aim to reduce risk, each introduces its own trade-offs.
Common Improvised Singlesig Modifications
Making Copies of Your Seed Phrase
Some users create multiple copies of their seed phrase and store them in different locations. This guards against loss from a single disaster like a fire or flood.
But this method increases exposure to theft. Anyone who finds one copy gains full access to your wallet. More copies mean more opportunities for malicious actors.
Splitting the Seed Phrase
Another tactic involves dividing the seed phrase into segments and storing each part separately. The idea is that a thief would need all segments to reconstruct the phrase.
In practice, this is risky. If an attacker obtains even a few words, they may be able to guess the rest. Moreover, if you lose one segment, you could permanently lose access to your funds.
Encoding the Seed Phrase
Encoding transforms your seed phrase into a disguised format using ciphers or algorithms. This can deter thieves who may not understand how to decode it.
The drawback is complexity. If you forget your encoding method or make an error, you might lock yourself out of your own wallet. This adds a new vector for loss.
Using Multiple Singlesig Wallets
Diversifying across several singlesig wallets reduces the risk of losing everything at once. You might store different amounts in separate wallets.
Yet, this multiplies the number of keys you must manage. Each wallet remains a single point of failure for its portion of your Bitcoin. You’ve reduced the impact of one failure but increased the likelihood of experiencing a failure.
Standardized Technical Enhancements for Singlesig
BIP39 Passphrases
A BIP39 passphrase acts as an extra word added to your seed phrase. It’s case-sensitive and can include special characters. When used, both the seed phrase and passphrase are required to access the wallet.
This adds theft resistance, especially if the passphrase is stored separately. It also allows for a decoy wallet—a small amount of funds accessible with the seed phrase alone, hiding the larger, passphrase-protected balance.
However, losing the passphrase means losing your Bitcoin. Strong passphrases are hard to remember, and written copies can be lost or stolen.
Seed XOR
Seed XOR is a method that splits a seed phrase into multiple new phrases using mathematical operations. To recover the original, all parts must be recombined. It was introduced by Coinkite for Coldcard users.
This offers improved security over manual splitting, and each component can also function as a separate decoy wallet. But if any part is lost, the original wallet becomes irrecoverable.
Shamir’s Secret Sharing (SSS)
Shamir’s Secret Sharing (SSS) divides a secret into multiple shares. A subset of these shares—for example, 2 out of 3—is sufficient to reconstruct the original key. This is implemented in some hardware wallets like Trezor under the SLIP-39 standard.
SSS reduces the risk of loss: losing one share doesn’t lock you out. It also resists theft, as a single share is useless on its own.
However, when reconstructing the key for spending, all required shares must be combined temporarily, creating a brief single point of failure. This inherent limitation applies to all singlesig methods.
What Is Multisignature (Multisig) Custody?
Multisignature (multisig) uses multiple private keys to control a wallet. A predetermined number of these keys must sign to approve a transaction. For example, in a 2-of-3 multisig setup, three keys exist, and any two can authorize a spend.
This structure fundamentally eliminates single points of failure. No one key can compromise the wallet, and losing one key doesn’t result in lost funds. Multisig provides superior protection against both theft and loss.
In a typical setup, keys can be stored in different locations and used independently. They never need to be brought together, reducing exposure during transaction signing.
Advantages of Multisig
- Enhanced Security: Requires collusion or multiple compromises for theft.
- Loss Resistance: Losing one key doesn’t lock you out.
- Flexible Configurations: Quorums like 2-of-3 or 3-of-5 cater to different security needs.
Historical Drawbacks and Modern Solutions
Previously, multisig transactions were larger and cost more in fees. With Bitcoin’s Taproot upgrade, multisig transactions can now be the same size and cost as singlesig, making them more economical.
Multisig setups are also more complex to configure and manage. Users must securely store multiple keys and maintain detailed wallet configuration data.
Collaborative Multisig Custody
For those who find solo multisig management daunting, collaborative custody services offer a balanced solution. In this model, you hold most keys, and a trusted partner holds one. This retains self-custody while providing support.
Benefits include:
- Technical assistance and education.
- Simplified inheritance planning.
- Access to integrated services like trading or loans.
- Reduced burden of key management.
👉 Explore advanced multisig strategies
Comparing Singlesig and Multisig Approaches
| Feature | Singlesig | Multisig |
|---|---|---|
| Theft Resistance | Low | High |
| Loss Resistance | Low | High |
| Setup Complexity | Low | Moderate |
| Transaction Fees | Low | Equal* |
| Single Point of Failure | Yes | No |
*With Taproot adoption, multisig fees are now comparable to singlesig.
Frequently Asked Questions
What is the main advantage of multisig over singlesig?
Multisig removes single points of failure. You can lose one key without losing funds, and a thief must compromise multiple keys to steal your Bitcoin. This makes it ideal for securing significant, long-term holdings.
Can I use both singlesig and multisig?
Absolutely. Many users keep a majority of their Bitcoin in a multisig vault for security and a smaller amount in a singlesig wallet for everyday transactions. This combines high security with convenience.
Is collaborative custody still self-custody?
Yes. In a collaborative multisig setup, you retain ultimate control. The service provider holds one key but cannot access your funds without your cooperation. You remain the sole authority over your assets.
What happens if I lose a key in a 2-of-3 multisig?
If you lose one key, the remaining two can still sign transactions. You should replace the lost key to restore redundancy, but your funds remain accessible and secure in the meantime.
Are multisig transactions more expensive?
Not anymore. Since Bitcoin’s Taproot upgrade, multisig transactions can be the same size and cost as singlesig transactions. Widespread adoption is making this increasingly common.
Which is better for beginners: singlesig or multisig?
Beginners often start with singlesig due to its simplicity. However, those holding large amounts may prefer collaborative multisig for enhanced security and professional support. Education and comfort level are key factors.
Conclusion: Choosing the Right Approach
There is no one-size-fits-all answer for Bitcoin self-custody. Your choice depends on your technical comfort, security needs, and how much Bitcoin you plan to store.
Singlesig is simple and suitable for smaller amounts or frequent transactions. Multisig offers robust protection for long-term savings. Many users wisely combine both, leveraging the strengths of each method.
Ultimately, the goal is to balance security, convenience, and resilience. By understanding these options, you can design a custody strategy that keeps your Bitcoin safe while aligning with your personal preferences and risk tolerance.