In the world of cryptocurrency, securing your assets is of utmost importance, especially when it comes to holding substantial amounts of bitcoin. The risk of loss or theft is a constant concern for individual holders as well as businesses and institutions. The key to mitigating this risk lies in eliminating single points of failure in your custody structure.
For individual bitcoin holders, there are tools available to reduce the risk of loss or theft, such as modifications to single signature wallets. However, these approaches may not completely eliminate single points of failure. For businesses, governments, or other institutions looking to secure a bitcoin treasury, eliminating single points of failure is not just important, but necessary. The only custody models worth considering for these entities are those that include a threshold requirement for accessing funds.
In this article, we will explore three different methods for applying threshold security: script multisig, Shamir’s secret sharing (SSS), and multi-party computation (MPC). Each method has its own trade-offs and considerations, and we will delve into how institutions can choose the best setup to meet their needs.
Script multisig involves multiple private keys, with a specific number of keys required to sign any transaction. This method is effective at removing single points of failure and has been a widely used security model for over a decade. However, deploying contracts publicly on the blockchain comes with trade-offs, such as exposing past security arrangements and transaction fees.
Shamir’s secret sharing allows users to split a key into distributed shares, with only a certain threshold of shares needed to reassemble the key. While SSS offers a simple and battle-tested approach, it still has vulnerabilities that create temporary single points of failure.
Multi-party computation (MPC) involves multiple parties computing a single signature directly from a threshold of their shares. Unlike SSS, MPC shares can be generated separately and never need to be brought together, eliminating single points of failure. However, MPC is complex and has had security vulnerabilities in the past.
When considering which model is best, it’s important to weigh the trade-offs and choose the method that best suits your needs. For businesses specializing in custody of multiple cryptocurrencies, MPC may be a suitable choice. However, for simple and reliable security, script multisig may be preferable. Combining models for collaborative custody is also an option, allowing for additional layers of security.
With the recent Taproot soft-fork, new tools have been introduced into the bitcoin ecosystem that impact institutional-grade custody. These tools, such as Schnorr signatures and script type privacy, offer new capabilities for securing bitcoin assets.
In conclusion, securing a bitcoin treasury requires careful consideration and the implementation of effective security measures. By eliminating single points of failure and leveraging threshold security models, institutions can safeguard their assets for the long term. Whether using script multisig, SSS, MPC, or a combination of methods, the goal is to ensure the highest level of security for your bitcoin holdings.
