Multi-signature Transactions

Create and use multi-signature wallets with Bitcoin Core descriptor wallets and PSBTs

Multi-signature (multisig) wallets require multiple signatures to authorize a transaction. This provides enhanced security by distributing control among multiple parties or devices.

What is Multisig?

A multisig wallet uses an M-of-N scheme where:

• N is the total number of public keys
• M is the minimum number of signatures required

Common configurations:

• 2-of-3: Requires 2 signatures from 3 possible keys
• 2-of-2: Requires both parties to sign
• 3-of-5: Requires 3 signatures from 5 possible keys

Prerequisites

This guide uses:

• Bitcoin Core with descriptor wallet support
• Signet network for testing (use mainnet for production)
• jq for JSON processing (optional but helpful)

Creating a 2-of-3 Multisig Wallet

1. Create participant wallets

   Create three separate descriptor wallets, one for each participant:

   for n in 1 2 3; do
     bitcoin-cli -signet createwallet "participant_${n}"
   done
   

   These wallets contain private keys and should only be used for signing multisig transactions. Don’t use them directly for receiving funds to avoid address reuse.

2. Extract xpubs from each wallet

   Use listdescriptors to get the extended public key (xpub) from each wallet:

   bitcoin-cli -signet -rpcwallet="participant_1" listdescriptors
   

   Extract the WPKH descriptor and get the xpub portion. With jq:

   XPUB1=$(bitcoin-cli -signet -rpcwallet="participant_1" \
     listdescriptors | jq -r \
     '.descriptors[] | select(.desc | startswith("wpkh") and contains("/0/*")) | .desc' \
     | grep -oP '(?<=\().*(?=\))' | sed 's|/0/\*|/<0;1>/\*|')
   

   Repeat for participant_2 and participant_3.

3. Create the multisig descriptor

   Combine the xpubs into a sorted multisig descriptor:

   DESC="wsh(sortedmulti(2,$XPUB1,$XPUB2,$XPUB3))"
   

   • wsh - Witness Script Hash (native SegWit)
   • sortedmulti(2,...) - 2-of-3 multisig with BIP 67 key sorting
   • <0;1> - Multipath for external/internal (change) addresses
4. Add checksum to descriptor

   Calculate and append the descriptor checksum:

   CHECKSUM=$(bitcoin-cli -signet getdescriptorinfo "$DESC" \
     | jq -r '.checksum')
   
   MULTISIG_DESC="[{\"desc\": \"${DESC}#${CHECKSUM}\", \"active\": true, \"timestamp\": \"now\"}]"
   
5. Create watch-only multisig wallet

   Create a wallet with private keys disabled:

   bitcoin-cli -signet createwallet "multisig_wallet" \
     disable_private_keys=true \
     blank=true
   

   Import the multisig descriptor:

   bitcoin-cli -signet -rpcwallet="multisig_wallet" \
     importdescriptors "$MULTISIG_DESC"
   
6. Verify wallet creation

   Check wallet info:

   bitcoin-cli -signet -rpcwallet="multisig_wallet" getwalletinfo
   

   The wallet should show "private_keys_enabled": false.

Funding the Multisig Wallet

Generate a receiving address from the multisig wallet:

ADDRESS=$(bitcoin-cli -signet -rpcwallet="multisig_wallet" getnewaddress)
echo $ADDRESS

On signet, get test coins from the faucet:

./contrib/signet/getcoins.py -c bitcoin-cli -a $ADDRESS

Or visit https://signetfaucet.com

Verify balance:

bitcoin-cli -signet -rpcwallet="multisig_wallet" getbalances

Creating a Multisig Transaction

1. Create unsigned PSBT

   Use the multisig wallet to create a funded PSBT:

   DEST_ADDR="tb1qxxx..."  # Destination address
   
   PSBT=$(bitcoin-cli -signet -rpcwallet="multisig_wallet" \
     walletcreatefundedpsbt \
     '[]' \
     "{\"$DEST_ADDR\": 0.008}" \
     | jq -r '.psbt')
   
2. Analyze the PSBT

   Check what signatures are needed:

   bitcoin-cli -signet analyzepsbt "$PSBT"
   

   This shows missing signatures and estimated fees.

3. Sign with first participant

   PSBT_1=$(bitcoin-cli -signet -rpcwallet="participant_1" \
     walletprocesspsbt "$PSBT" | jq -r '.psbt')
   
4. Sign with second participant

   PSBT_2=$(bitcoin-cli -signet -rpcwallet="participant_2" \
     walletprocesspsbt "$PSBT" | jq -r '.psbt')
   

   For a 2-of-3 multisig, you only need 2 signatures. The third participant doesn’t need to sign.

5. Combine the signatures

   COMBINED=$(bitcoin-cli -signet combinepsbt "[\"$PSBT_1\", \"$PSBT_2\"]") 
   
6. Finalize and broadcast

   HEX=$(bitcoin-cli -signet finalizepsbt "$COMBINED" | jq -r '.hex')
   bitcoin-cli -signet sendrawtransaction "$HEX"
   

   Returns the transaction ID if successful.

Alternative: Sequential Signing

Instead of parallel signing and combining, participants can sign sequentially:

# First signature
PSBT_1=$(bitcoin-cli -signet -rpcwallet="participant_1" \
  walletprocesspsbt "$PSBT" | jq -r '.psbt')

# Second signature (on already-signed PSBT)
PSBT_2=$(bitcoin-cli -signet -rpcwallet="participant_2" \
  walletprocesspsbt "$PSBT_1" | jq -r '.psbt')

# Finalize
HEX=$(bitcoin-cli -signet finalizepsbt "$PSBT_2" | jq -r '.hex')
bitcoin-cli -signet sendrawtransaction "$HEX"

Multisig Descriptor Types

Native SegWit (Recommended)

wsh(sortedmulti(2,xpub1/<0;1>/*,xpub2/<0;1>/*,xpub3/<0;1>/*))

• Most efficient (lowest fees)
• Best privacy
• Modern format

Nested SegWit (Legacy Compatibility)

sh(wsh(sortedmulti(2,xpub1/<0;1>/*,xpub2/<0;1>/*,xpub3/<0;1>/*)))

• Compatible with older wallets
• Slightly higher fees than native SegWit

Legacy (Not Recommended)

sh(sortedmulti(2,xpub1/<0;1>/*,xpub2/<0;1>/*,xpub3/<0;1>/*))

• Highest fees
• No SegWit benefits
• Only use if absolutely necessary

Security Best Practices

Critical Security Measures:

• Store participant wallets on different devices
• Never store all private keys in one location
• Use hardware wallets for production multisig
• Back up all xpubs and the multisig descriptor
• Test with small amounts on signet first
• Verify all transaction details before signing

Recovery and Backup

What to Backup

1. Multisig descriptor (with checksum)
2. All participant wallet seeds (12/24 word phrases)
3. Derivation paths used for xpubs

Recovering a Multisig Wallet

To recover:

1. Restore participant wallets from seeds
2. Recreate the multisig descriptor with same xpubs
3. Import descriptor into a new watch-only wallet

bitcoin-cli createwallet "recovered_multisig" \
  disable_private_keys=true blank=true

bitcoin-cli -rpcwallet="recovered_multisig" \
  importdescriptors "$MULTISIG_DESC"

Using sortedmulti vs multisig

sortedmulti (Recommended):

• Implements BIP 67 key sorting
• Order of xpubs doesn’t matter
• All participants get same addresses
• Easier wallet recovery

multisig:

• Keys stay in specified order
• All participants must use exact same order
• Error-prone for recovery

Combining with Offline Signing

For maximum security, combine multisig with offline signing:

1. Keep one participant wallet completely offline
2. Create PSBTs on online watch-only wallet
3. Sign on offline device
4. Combine signatures online
5. Broadcast transaction

See Offline Signing for details.

Troubleshooting

”Insufficient funds” Error

Ensure coins have at least 1 confirmation:

bitcoin-cli -signet -rpcwallet="multisig_wallet" listunspent

“Missing signatures” After Combining

Verify you have enough signatures for M-of-N:

bitcoin-cli -signet analyzepsbt "$COMBINED"

“Could not sign transaction” Error

Check that the participant wallet has the correct private key:

bitcoin-cli -signet -rpcwallet="participant_1" getwalletinfo

Next Steps

PSBT

Deep dive into Partially Signed Bitcoin Transactions

Offline Signing

Combine multisig with air-gapped security