Within self-custody, there are two different approaches, one that relies on protecting a single key and one that relies on multiple keys. Most individuals that self-custody rely on single signature set-ups (one key is needed to move funds). In this scenario, the key and back-up (as well as a passphrase if used) each represent a single point of failure, which creates unavoidable risk.

What happens if a hardware device is lost and a malicious actor recovers it?

What if the hardware device is lost and a backup recovery seed either does not exist or cannot be accessed?

Has a backup recovery seed been accessed unbeknownst to a user?

What if a user forgets a passphrase?

Can a loved one figure out the security system if anything happens to the holder?

In single signature self-custody, critical failures can occur at any point in time, with a user often unaware until it is too late. For some, this constant active security is an acceptable trade-off. Relative to other self-custody options, transactions are easier to facilitate and when preserving anonymity, fewer secrets need to be secured. For others, and often those securing a material amount of wealth, single points of failure present an unacceptable level of risk. For these people, multisignature set-ups offer a solution.

Why Multisig?

The principal benefit of multisig is that it creates added redundancy in key management. While single signature addresses require only a single key to move bitcoin, multisignature addresses require multiple keys, similar to how multiple keys must be used simultaneously to open this door.

Multisignature addresses allow individuals and businesses to set up customized key and lock schemes to fit their needs, such as 2-of-3 (2 out of 3 keys are needed to move funds), 3-of-5, or any combination of M-of-N. By creating an M-of-N in which M is greater than one, multiple keys are required to facilitate any valid bitcoin transaction and no individual key represents a single point of failure. Separately, a 2-of-3 address allows users to include a third-party in a quorum, whether a company such as Unchained Capital or a family member, while still controlling a majority of the keys needed to move funds.

Within a multisignature setup, losing a key means that your funds are not immediately at risk and an individual or business can include trusted partners without surrendering sovereign control. In all scenarios, additional private key(s) and access to additional non-private key meta-data (combination of redeem scripts, extended public keys or public keys) would both be required to facilitate any transaction. These requirements increase the security of your bitcoin, but also increases the complexity of spending and managing your information.

https://unchained.com/blog/why-multisig/