Author: BitVault
Source: https://blog.bitvault.sv/common-multisig-setup-errors-and-fixes/
Multi-signature wallets improve the security of Bitcoin storage devices by requiring multiple keys to sign transactions. However, improper usage can lead to fund loss or device vulnerabilities. Common mistakes include: poor key backups, incorrect configuration scripts, insufficient key diversification, software issues, and lack of a recovery plan. Here's how you can avoid these mistakes:
- Properly back up your keys : Store copies in multiple secure locations (e.g., fireproof safes) and avoid using electronic storage media. Using techniques like Shamir's key splitting can increase security.
- Verify scripts and addresses : Confirm all configurations multiple times; test with a small amount of funds before transferring large amounts.
- Physically disperse keys : Distribute keys across multiple devices and locations to reduce risk. Avoid storing multiple keys in the same location.
- Ensure software compatibility : Use software that supports your multi-signature setup and update it frequently. Test the integrity of the software before depositing funds.
- Prepare a recovery plan : clearly document recovery steps, test them regularly, and have backup key holders.
Regular testing and auditing are key steps in ensuring ongoing security. You should simulate scenarios where you might need to restore your wallet, review key backups quarterly, and rotate your keys regularly. Tools like BitVault can streamline these processes and offer advanced features like delayed transactions and security notifications.
Common Misconceptions and Corrections in Using Multi-Signature Wallets
Setting up a multi-signature wallet can be challenging, and even small mistakes can lead to major problems. Understanding common pitfalls and how to avoid them can help you avoid costly mistakes. Below are detailed explanations of common pitfalls and practical solutions to ensure your multi-signature wallet runs smoothly.
Poor key backup procedures
Problem : Many users either don't properly back up their private keys (seed words) or store all their backups in one place. Even worse, some users never even test their recovery procedures (until they need them and find themselves unable to recover), putting their funds at serious risk.
Solution : Create multiple backups and store them in separate, secure locations. Spread out your key-related items across multiple locations, ensuring that at least one set of seed words is completely separate from the other elements.
(Translator's note: As the name suggests, a multi-signature wallet involves multiple private keys (seed words). These seed words must be independently backed up, and all materials sufficient to restore the wallet (withdraw funds) should not be stored in a single safe place. Otherwise, the security of this safekeeping device will be reduced to the same as a single-signature wallet - only one safe place needs to be compromised to steal the funds.)
Avoid using electronic storage media — Don't store seed words on electronic devices, don't copy and paste them, and don't take photos. Instead, write them down on paper or engrave them on metal plates (which are more durable). Store these copies in a safe place, such as a bank safe. For extra security, you can use Shamir's Private Key Splitting (SSS) to split a seed word into multiple pieces, requiring a certain number of pieces to recover the seed.
Regularly test your backup system to ensure you can restore your wallet and the funds in it. Write down the recovery process clearly so you can follow it even if you pick it up again years later.
Wrong address (script) setting
Problem : Errors in public key records, using mismatched address formats (or incorrect script configuration) can make it impossible to recover your wallet or expose it to risk. This problem often occurs when users need to manually enter data or use incompatible wallet software.
Solution : Before completing the wallet setup, double-check the public key record and address format. Use trusted tools to verify that all details are correct, and never copy sensitive information from unsecured, untrusted sources.
Test your safekeeping device with small amounts of money to catch glitches early: make sure you can deposit and withdraw funds without problems before depositing larger amounts.
Keep detailed records of your multi-signature wallet configuration, including threshold requirements, script types, and all public keys configured. This information is extremely useful when recovering the wallet and troubleshooting.
Poor key diversification and coordination
Problem : Storing multiple keys for a multi-signature wallet in the same location degrades the wallet’s security. Furthermore, the unclear interaction protocol between signers can lead to confusion, delays, and even security vulnerabilities in the transaction approval process.
Solution : Distribute your keys across multiple devices, multiple people, and multiple locations. Avoid storing multiple keys on the same device or in the same location. Ensure that your hardware signer and seed words are stored separately.
Establish clear rules for who initiates transactions and how they collaborate. Use secure communication channels, such as encrypted chat, video conferencing, or private virtual networks with multi-factor authentication. Avoid transmitting sensitive data in emails, as they are easily spoofed.
Educate all key holders on security best practices, signing processes, and how to handle potential threats. Keep signers' identities secret to protect them from targeted attacks, and avoid associating their real names and home addresses with signing keys.
When signing a transaction, ensure that all participants understand the intent, payment destination, and amount of the transaction. Verify the payment address and implement a clear verification process for each transaction.
Software compatibility issues
Issue : Using wallet software or services that don't fully support your multi-signature device may result in failed transactions or inability to recover funds. Different software may handle multi-signature scripts differently.
Solution : Choose a wallet software that is compatible with your multi-signature configuration. Compatibility is just as important as keeping your keys safe.
Lack of recovery and emergency response plans
Problem : Many users don’t have a proper recovery (emergency) plan for their multi-signature wallets. Without clear documentation and procedures, losing a single key can result in permanent loss of funds or a laborious recovery attempt.
Solution : Prepare a plan for the event that a private key is lost or stolen. This may require arranging for a trusted third party to act as a backup key custodian. Document the recovery steps and keep them separate from the private key.
How to test and audit your multi-signature setup
After addressing common issues, continuous testing and auditing are also key to ensuring your wallet’s security. Regular audits and rehearsals for recovery scenarios can help you identify weaknesses and prevent vulnerabilities from escalating.
Practice recovery scenarios
Testing recovery scenarios is a great way to identify and fix potential vulnerabilities. For example, simulate the loss of a hardware signer or the incapacitation of a signer. See how long it takes to withdraw your funds from your wallet and note any obstacles you encounter.
Run these simulations at least twice a year and document what you learn. Ensure all participants know their roles and have access to necessary backups. A recovery checklist can be a lifesaver—including steps like retrieving backups and generating new keys if needed. If you're using a 2-of-3 threshold, try recovering your wallet using different key combinations, ensuring each recovery path works as you intended.
Also, be mindful of the time it takes to coordinate with other signatories during wallet recovery. If your device requires multiple people to approve transactions, rehearse the communication process to ensure it's smooth and secure. Establish encrypted communication channels or secure group chats to ensure smooth coordination in an emergency.
Frequent contact builds confidence and ensures everyone is always prepared, laying the foundation for regular key checks.
Regular key and backup checks
To maintain security, your multi-signature setup also requires regular maintenance. You can check the integrity and accessibility of your backups quarterly. For example, make sure each seed word written down on paper is still legible and intact.
During the review, verify that all signers have access to their keys and understand their responsibilities. Because people can change phone numbers, move, or even lose their devices, keeping contact information and up-to-date key locations is crucial. Keep an eye on your emergency contact list and ensure backup key holders are available and willing to help if needed.
Additionally, it’s important to update your wallet software and ensure it’s compatible with the other tools you use. Software updates can sometimes affect how multi-signature transactions are processed, so staying up to date is key.
Regularly review your transaction history for unusual activity and unauthorized attempts. Even failed transaction attempts can indicate a vulnerability. Keep a record of your findings.
Consider rotating your keys every two years as an additional precaution. While this may be excessive, it reduces the risk of long-term losses from key theft. When rotating your keys, create a new multi-signature wallet, test it thoroughly, and then transfer funds from the old wallet to the new one.
Quick Reference: Problem and Solution List
To support efficient testing and auditing, use this quick reference guide to troubleshoot common issues. The following list lists common pitfalls, their manifestations, impact level, and solutions, as well as suggestions for preventing further problems.
| Error Type | Performance | Impact level | Quick Solution | suggestion |
|---|---|---|---|---|
| Poor key backup | Lost access to wallet after device failure; missing seed words | fatal | Recreate the backup immediately; use a small amount of funds to test whether the wallet can be restored | Store backups in 3 or more different locations; use fireproof/waterproof storage media |
| Incorrect address settings | Transaction failed; funds sent to wrong address | high | Verify that the script type is consistent across all devices; regenerate the address if necessary. | Check the address format several times before the first transaction |
| Poor key distribution | All keys are kept in one place; one person controls multiple keys | high | Redistribute keys to different locations/people; update access procedures | Plan the location and custodian from the outset |
| Software compatibility | Unable to sign transaction; wallet cannot recognize signature; | medium | Update all wallet software; verify BIP standard compatibility | Test with a small amount before depositing a large amount |
| Lack of recovery plan | No clear plan for what to do if a signatory becomes incapacitated; no emergency plan | medium | Write down every step to restore the wallet; designate backup signers | Develop written procedures; practice them regularly |
The " Impact Level " column helps you prioritize remediation actions. Address critical and high-risk issues immediately, as they can result in permanent loss of funds (or a permanent lock on your wallet).
When using this guide, review the issues you encounter in the "Symptoms" column and learn about the corresponding "Quick Fixes." After the quick fixes resolve the immediate issue, the "Recommendations" can help you avoid repeating the same mistakes.
Keep this form for your quarterly review. Consider printing it and keeping it with your backup materials for quick reference.
For emergency situations, such as transaction failures or signer incapacity, please use the quick fix first. However, please note that in some cases, such as key redistribution, it may be necessary to create a new multi-signature wallet and transfer funds. Please plan these steps carefully to ensure a smooth migration.
in conclusion
By requiring multiple signatures, multi-signature wallets can significantly reduce the risk of single points of failure.
Keeping your multi-signature wallet secure is a process that requires careful planning and ongoing effort. Mistakes like lacking a key backup and recovery plan can often be avoided through careful preparation and regular review.
There are three key principles to maintaining the security of your multi-signature wallet: properly backing up your seed words , distributing them across multiple locations and devices , and regularly testing your setup . After creating your seed words, back them up and regularly test them by attempting to sign to ensure everything is working as expected.
When configuring your wallet, strike a balance between security and ease of use. For example, signing requirements like 2-of-3 and 3-of-5 provide flexibility while making it easy to recover funds if a key is lost or stolen. Conversely, configurations like 2-of-2 and 3-of-3 can introduce issues if you lose access to even one key. Additionally, store your seed words on different devices to mitigate risk.
As your environment changes, regularly review your security settings and key holder arrangements. Review the signed quick reference sheet to identify and resolve vulnerabilities that could lead to permanent loss of funds.
The most powerful aspect of a multi-signature wallet is its built-in redundancy. Even if you lose one private key (seed word), you can still access your funds as long as you meet the signing threshold requirements. This makes multi-signature wallets an excellent choice for safely storing large savings. However, these benefits only come if you follow proper setup and maintenance practices. Skipping these steps can reduce the security that a multi-signature wallet provides.
