Most people hold their private keys or backup phrase in single location, but if you have more coins or you just want to have better security or you share your wealth with other people you should consider some alternatives.
Complicating things and creating your own secret systems often resulted in people losing all their Bitcoins because one small mistake can create big problems.
Some of the options we have are Multisig and Shamir Secret Sharing and there are others but not so popular as this two I will compare here.
Shamir Secret Sharing (SSS)Shamir Secret Sharing was created in 1979 by Israeli cryptographer Adi Shamir as a way to share a secret divided into part with each of them having unique part.
Secret can be shared with multiple people or locations with threshold for minimum number of shares needed for reconstruction, for example you can have 2-of-3 split and any combination of two splits can restore secret.
Problem with SSS is that there is single point of failure at the time when one person is holding all shares, and this is better explained in
Jameson Lopp blog postsource+Pros- More secure and better than holding a single secret key (if done correctly).
- No need for multiple signatures from different devices for every transaction (like in multisig)
- Address balance is hidden from other participants in SSS.
- Not visible on-chain and this can be good for privacy.
- No extra fees when secret is reconstructed.
- Cons- Single point of failure.
- Risks during generation and splitting the secret in multiple parts.
- There is no way for participants to verify security and if their part is really needed for secret reconstruction and spending of Bitcoins.
- SSS can only be used once, and after secret is reconstructed it can no longer be considered secure.
- There is no standard implementation (like for multisig)
MultisigMultisig require more than one key to verify Bitcoin transaction, it exist for years and so far this is one of the best ways for increasing security of your funds and eliminating single point of failure.
If we look at Bitamps stats we can see that 20.3% of outputs are done with Multisig
source +Pros- No single point of failure.
- Participants can verify security.
- Native Bitcoin support as smart contract.
- Minimal setup risks and private keys are never revealed to other participants.
- You can use safely use Multisig multiple times.
- All participants can verify that Bitcoin is stored using multisig setup.
- Cons- Multisig is visible onchain with all balances and that is not so great for privacy.
- There are extra fees for using Multisig and signatures for every transaction.
- You need to know public keys for other multisig participants in case they lose their private keys.
- Needs more time for signing and sending transactions.
I would always choose Multisig instead of Shamir Secret Sharing especially after Taproot activation, but SSS can still be used when someone is holding small personal fortune and they want to improve security and reduce risks.
SSS is better than simply holding single private keys in multiple locations or splitting your seed words in parts that I would never recommend doing.
Shamir Secret Sharing is available for hardware wallets like Trezor Model T with
slip0039 or Cobo Vault, and you can read more about it in this resources:
-
SSS wiki page-
A Detailed Guide to Shamir Backup-
Shamir Backup Trezor wiki-
Multisig vs SSS-
How & Why To Set Up A Shamir Backup On Trezor Model T-
How to Import or Create Shamir Backup with Cobo VaultThere is even one bitcoin wiki page calling Shamir Secret Sharing a
Snakeoil