Multisig vault

The chain sees nothing unusual here: an ordinary two-of-three or three-of-five output, standard since BIP-11 was accepted in October 2011. What you buy from a vault company is a co-signer with a support desk, a documented recovery path, and an annual invoice. That is worth paying for when the balance worries you but running three devices unaided worries you more.

How it works

A multisig vault is three separate objects, and most people only think about the first. There are the keys, sitting on signing devices in different places. There is the quorum policy, which says how many of them have to agree before the network will accept a spend. And there is the output descriptor, a text string listing every extended public key, its derivation path, and the threshold. Hold every key and lose the descriptor and you can still be locked out, because nothing left tells you which addresses to look at.

In the collaborative version the provider is one signer and nothing more. It can co-sign when you ask, and it cannot build a valid spend alone, because it is one signature short of the threshold. You keep a strict majority, usually two keys of three, which means you can walk away whenever you like: sign with your own pair, send everything to an address you generated yourself, and the relationship ends that afternoon. A service you cannot exit that way is not collaborative custody, whatever the website calls it.

Signing runs on partially signed bitcoin transactions, the file format defined in BIP-174. Coordinator software assembles the unsigned transaction, each device adds its signature to the same file in turn, and the finished transaction goes out to the network. The provider signs only after an identity check of its own design, and that check is the actual product: a person confirming that whoever is requesting a large withdrawal is you, and not someone holding your unlocked phone.

Where you see it

Vault services differ from one another contractually rather than cryptographically, so the questions worth asking are dull ones. Do you hold a majority of the keys, or does the provider hold enough to spend with one accomplice? Is the descriptor handed over as plain text you can print, or only shown inside an app? What is the written procedure if the company closes next month? And what happens when a court orders the provider to freeze its key, which in a two-of-three where you hold two changes nothing, and in any other arrangement changes everything?

Pricing is normally a flat annual fee rather than a percentage of the balance, which is the honest shape for it: the work a provider does for you does not grow when the price of bitcoin does.

The alternative is a vault you run yourself. Sparrow, Nunchuk and Liana all build the same quorum with no third party in it, no fee and no identity check, in exchange for you being the person who keeps the descriptor safe and answers the phone at three in the morning. Plenty of people who try both settle in between: self-managed keys, plus one spare key held by a relative or a lawyer who has been told what it is for.

Multisig vault vs custodial wallet

A multisig vault leaves you able to spend without anyone's cooperation; a custodial account does not. Both involve a company, a login and support tickets, which is why the two get filed together, and the difference only shows up on the worst day. Ask one question: if the firm vanished tonight without warning, could you move your coins tomorrow? With a vault where you hold two keys of three the answer is yes, and the failure costs you an evening. With a custodian the answer is no, and you join a creditors' list. Mt. Gox halted withdrawals in February 2014, and its creditors were still receiving distributions a decade afterward.