Controlling your own private keys is a vital aspect of self-sovereignty when it comes to a bearer instrument like bitcoin. The frequent refrain is “Not your keys; Not your coins”. Trusting the wrong people with your bitcoin can be disastrous. Under certain circumstances though, it may be necessary to bestow spending privileges on others, such as for succession planning or as contingency measures in corporate structures.
Multisig, short for multisignature addresses or wallets, require a predefined quorum or signatures to enable spending. This is considered by many to be the most resilient strategy for storing bitcoin and distributing access to a wallet. This can be done by storing keys in various private locations or with trusted third parties. The trusted third parties may be partners in a company or your family accountant. They may be also be family or close associates that you expect put your bitcoin to use in some way should be incapacitated.
MyCitadel uses Taproot to offer spending conditions that can change over time.
Various strategies have emerged for withholding full spending rights from your associates until they are needed. For example, in a 2-of-3 multisig setup your heirs may have only one key and the second will be provided to them in the case of your demise by a solicitor. What if the solicitor loses their key and is unable to assist your heirs? What if they exploit a potential opportunity to extort your heirs for access to your bitcoin estate? It would be preferable to avoid placing trust like this in a third party and this is where innovations based on the protocol upgrade, Taproot, change things. We introduced Taproot in an earlier article and will discuss a particular application of it that has launched this month.
Using recently released software, MyCitadel, users can form time-locked multisig wallets. This is a feature that uses Taproot scripting to specify spending conditions that change with time, or more precisely, at specific block heights. For instance, a 2-of-3 multisig can become a 1-of-3 multisig after 5 years! In this way, an heir holding one key will be able to spend without needing a secret (such as an additional key) revealed to them. This obviates the role of a trusted third party such as the solicitor in the earlier example and does not require any input from you. If, in the meantime, circumstances change, you can simply transfer your savings to a new wallet with revised spending conditions.
This is one aspect of the exciting, new mechanisms that Taproot enables and it is likely to be just the tip of the iceberg. There are expectations that layer two technologies, such as the establishment and management of lightning network channels, will improve dramatically based on the adoption of Taproot. As well, spends from Taproot addresses may offer improved privacy.