Crypto Biz Magazine—July, 2014/Issue.02

WHY YOU SHOULD PROBABLY BE
USING A MULTISIG BITCOIN WALLET
by ARIANNA SIMPSON
If you’re like most people,
you probably like things to be
simple. Many users simply don’t
want the headache of thinking
about security, which is the
appeal of a full-service solution
that stores your private keys
for you. These full-service solutions
become problematic for
more advanced or tech-savvy
users, who generally want a
heightened degree of security
while maintaining control over
their assets.
Page.26 July.2014
Crypto Biz Magazine
I WOULD SAY I’M GENERALLY
a jovial person, but if I woke up
and realized I had lost 7500
bitcoins, I would encourage
the rest of the world to back
away from me… very slowly and
without making any sudden
movements. Fortunately, this
hasn’t happened to me, but it
did happen, unfortunately, to
Jeremy Howells, who became
infamous in the Bitcoin community
for accidentally disposing
of his hard drive with the keys
to all of his bitcoins on it.
At this point in time, we’re still
in the early stages of Bitcoin’s
life cycle, and five years is like
the blink of an eye in currency
years. Although there is a strong
trend toward mass adoption
(5 million wallets, growing 8x
year-over-year, according to
Mary Meeker’s annual report),
we’re not there yet. As things
currently stand, there’s a
fundamental disconnect
between usability and control.
You can choose to keep your
private keys yourself in what is
known as a client-side wallet,
or you can hand them over to
a third party that stores them
for you in a web wallet. When
you do the latter, you’re trusting
that the third party is taking
appropriate security measures,
which includes keeping at least
the majority of your bitcoins in
cold storage. As we’ve learned
from Mt. Gox and other similar
fiascos, this isn’t always the
case, which is why the safest
thing to do is to diversify your
holdings by using a variety of
wallets so if one gets hacked,
you don’t lose everything.
Conveniently enough, the
Bitcoin protocol can accommodate
such a tall order. Pay
to Script Hash (P2SH) is a type
of Bitcoin address that was
introduced as part of Bitcoin
Improvement Proposal 16
(also known as BIP 16), early in
2012. P2SH addresses can be
secured using a more complex
algorithm than standard addresses,
and involve the use of
multiple Elliptic Curve Digital
Signature Algorithm (more
commonly known as ECDSA)
keys, rather than only one.
Multi-signature (M of N) wallets
allow users to maintain
direct control over their
bitcoins while also removing
some of the security burden
from them. In the event that
one of their private keys is lost
or stolen, it no longer means
lost access to your bitcoins,
as they can still be accessed
using the backup keys.
The concept of m-of-n signature
schemes is fairly simple,
at least at an abstract level:
In order to complete a transaction,
more than one private key
(m) is needed out of a total
number generated (n). In a
2-of-3 scenario, you would need