Learning-Bitcoin-from-the-Command-Line/06_1_Sending_a_Transaction_to_a_Multisig.md

6.1: Sending a Transaction with a Multisig

ℹ️ NOTE: This is a draft in progress, so that I can get some feedback from early reviewers. It is not yet ready for learning.

The first way to vary how you send a basic transaction is to use a multisig. This gives you the ability to require that multiple people (or at least multiple private keys) authorize the use of funds.

Understand How Multisigs Work

In a typical P2PKH or SegWit transaction, bitcoins are sent to an address based on your public key, which in turn means that the related private key is required to unlock the transaction, solving the cryptographic puzzle and allowing you to reuse the funds. But what if you could instead lock a transaction with multiple private keys. This would effectively allow funds to be sent to a group of people, where those people all have to agree to reuse the funds.

📖 What is a multisignature? A multisignature is a methodology that allows more than one person to jointly create a digital signature. It's a general technique for the cryptographic use of keys that goes far beyond Bitcoin.

Technically, a multisignature cryptographic puzzle is created by Bitcoin using the OP_CHECKMULTISIG command, and typically that's encapsulated in a P2SH address. §8.4: Scripting a Multisig will detail how that works more precisely. For now, all you need to know is that you can use bitcoin-cli command to create multisignature addresses; funds can be mailed to these addresses just like any normal P2PKH address, but multiple private keys will be required for the redemption of the funds.

📖 What is a multisignature transaction? A multisignature transaction is a Bitcoin transaction that has been sent to a multisignature address, thus requiring the signatures of certain people from the multisignature group to reuse the funds.

Simple multisignatures require everyone in the group to sign the UTXO when it's spent. However, there's more complexity possible. Multisignatures are generally described as being "m of n". That means that the transaction is locked with a group of "n" keys, but only "m" of them are required to unlock the transaction.

📖 What is a m-of-n multisignature? In a multisignature, "m" signatures out of a group of "n" are required to form the signature, where "m ≤ n".

Create a Multisig Address

In order to lock a UTXO with multiple private keys, you must first create a multisignature address. The examples used here show the creation (and usage) of a 2-of-2 multisignature.

Create the Addresses

To create a multisignature address, you must first ready the addresses that the multisig will combine. Best practice suggests that you always create new addresses. This means that the participants will each run the getnewaddress command on their own machine:

machine1$ address1=$(bitcoin-cli getnewaddress)

And:

machine2$ address2=$(bitcoin-cli getnewaddress)

Afterwards, one of the recipients (or perhaps some third party) will need to collect the signatures.

Collect Public Keys

However, you don't need the addresses, which are the hashes of public keys, to create an multi-sig, but instead the public keys themselves.

This information is readily available with the getaddressinfo command.

Over on the remote machine, which we assume here is machine2, you can get the information out of the listing.

machine2$ bitcoin-cli -named getaddressinfo address=$address2
{
  "address": "tb1qr2tkjh8rs9xn5xaktf5phct0wxqufplawrfd9q",
  "scriptPubKey": "00141a97695ce3814d3a1bb65a681be16f7181c487fd",
  "ismine": true,
  "solvable": true,
  "desc": "wpkh([fe6f2292/0'/0'/1']02bfde48be4aa8f4bf76c570e98a8d287f9be5638412ab38dede8e78df82f33fa3)#zc64l8dw",
  "iswatchonly": false,
  "isscript": false,
  "iswitness": true,
  "witness_version": 0,
  "witness_program": "1a97695ce3814d3a1bb65a681be16f7181c487fd",
  "pubkey": "02bfde48be4aa8f4bf76c570e98a8d287f9be5638412ab38dede8e78df82f33fa3",
  "ischange": false,
  "timestamp": 1592957904,
  "hdkeypath": "m/0'/0'/1'",
  "hdseedid": "1dc70547f2b80e9bb5fde5f34fb3d85f8d8d1dab",
  "hdmasterfingerprint": "fe6f2292",
  "labels": [
    ""
  ]
}

The pubkey address (02bfde48be4aa8f4bf76c570e98a8d287f9be5638412ab38dede8e78df82f33fa3) is what's required. Copy it over to your local machine by whatever means you find most efficient and least error prone.

This process needs to be undertaken for every address from a machine other than the one where the multisig is being built. Obviously, if some third-party is creating the address, then you'll to do this for every address.

⚠️ WARNING: Bitcoin's use of public-key hashes as addresses, instead of public keys, actually represents an additional layer of security. Thus, sending a public key slightly increases the vulnerability of the associated address, for some far-future possibility of a compromise of the elliptic curve. You shouldn't worry about having to occasionally send out a public key for a usage such as this, but you should be aware that the public-key hashes represent security, and so the actual public keys should not be sent around willy nilly.

However, if one of the addresses was created on your local machine, which we assume here is machine1, you can just dump the pubkey address into a new variable.

machine1$ pubkey1=$(bitcoin-cli -named getaddressinfo address=$address1 | jq -r '.pubkey')

Create the Address

A multisig can now be created with the createmultisig command:

machine1$ bitcoin-cli -named createmultisig nrequired=2 keys='''["'$pubkey1'","02bfde48be4aa8f4bf76c570e98a8d287f9be5638412ab38dede8e78df82f33fa3"]'''
{
  "address": "2N8MytPW2ih27LctLjn6LfLFZZb1PFSsqBr",
  "redeemScript": "522102da2f10746e9778dd57bd0276a4f84101c4e0a711f9cfd9f09cde55acbdd2d1912102bfde48be4aa8f4bf76c570e98a8d287f9be5638412ab38dede8e78df82f33fa352ae",
  "descriptor": "sh(multi(2,02da2f10746e9778dd57bd0276a4f84101c4e0a711f9cfd9f09cde55acbdd2d191,02bfde48be4aa8f4bf76c570e98a8d287f9be5638412ab38dede8e78df82f33fa3))#0pazcr4y"
}

⚠️ VERSION WARNING: Older versions of createmultisig allowed you to enter an address instead of a public key, if the full information about the address was in your local wallet. This is no longer the case for modern Bitcoin core release, and so the shorthand should not be used.

When creating the multisignature address, you list how many signatures are required with the nrequired argument (that's "m" in a "m-of-n" multisignature), then you list the total set of possible signatures with the keys argument (that's "n"). Note that the the keys entries likely came from different places. In this case, we included $pubkey1 from the local machine and 02bfde48be4aa8f4bf76c570e98a8d287f9be5638412ab38dede8e78df82f33fa3 from a remote machine.

ℹ️ NOTE — M-OF-N VS N-OF-N: This example shows the creation of a simple 2-of-2 multisig. If you instead want to create an m-of-n signature where "m < n", you adjust the nrequired field and/or the number of signatures in the keys JSON object. For a 1-of-2 multisig, you'd set nrequired=1, while for a 2-of-3 multisig, you'd leave nrequired=2, but add one more public key or address to the keys listing.

When used correctly, createmultisig returns two results, both of which are critically important.

The address is what you'll give out to people who want to send funds. You'll notice that it has a new prefix of 2, exactly like those P2SH-SegWit addresses. That's because, like them, createmultisig is actually creating a totally new type of address called a P2SH address. It works exactly like a standard P2PKH address for sending funds, but since this one has been built to require multiple addresses, you'll need to do a lot more work to spend them.

🔗 TESTNET vs MAINNET: On testnet, the prefix for P2SH addresses is 2, while on mainnet, it's 3.

The redeemScript is what you need to redeem the funds (along with the private keys for "m" of the "n" addresses). This script is another special feature of P2SH addresses and will be fully explained in §8.1: Building a Bitcoin Script with P2SH. For now, just be aware that it's a bit of data that's required to get your money.

📖 What is a P2SH address? P2SH stands for Pay-to-script-hash. It's a different type of receipient than a standard P2PKH address or even a Bech32, used for funds whose redemption are based on more complex Bitcoin Scripts. bitcoin-cli uses P2SH encapsulation to help standardize and simplify its multisigs as "P2SH multisigs", just like P2SH-SegWit was actually using P2SH to standardize its SegWit addresses, and make them fully backward compatible.

⚠️ WARNING: P2SH multisig addresses, like the ones created by bitcoin-cli, have a limit for "m" and "n" in multisigs based on the maximum size of the redeem script, which is currently 520 bytes. Pratically, you won't hit this unless you're doing something excessive.

Save Your Work

Here's an important caveat: nothing about your multisig is saved into your wallet using these basic techniques. In order to later redeem money sent to this multisignature address, you're going to need to retain two crucial bits of information:

• A list of the Bitcoin addresses used in the multisig.
• The redeemScript output by createmultsig.

Technically, the redeemScript can be recreated by rerunning createmultisig with the complete list of public keys in the same order and with the right m-of-n count. But, it's better to hold onto it and save yourself stress and grief.

Send to a Multisig Address

If you've got a multisignature in a convenient P2SH format, like the one generated by bitcoin-cli, it can be sent to exactly like a normal address.

$ utxo_txid=$(bitcoin-cli listunspent | jq -r '.[0] | .txid') 
$ utxo_vout=$(bitcoin-cli listunspent | jq -r '.[0] | .vout')
$ recipient="2N8MytPW2ih27LctLjn6LfLFZZb1PFSsqBr"

$ rawtxhex=$(bitcoin-cli -named createrawtransaction inputs='''[ { "txid": "'$utxo_txid'", "vout": '$utxo_vout' } ]''' outputs='''{ "'$recipient'": 0.000065}''')
$ bitcoin-cli -named decoderawtransaction hexstring=$rawtxhex 
{
  "txid": "b164388854f9701051809eed166d9f6cedba92327e4296bf8a265a5da94f6521",
  "hash": "b164388854f9701051809eed166d9f6cedba92327e4296bf8a265a5da94f6521",
  "version": 2,
  "size": 83,
  "vsize": 83,
  "weight": 332,
  "locktime": 0,
  "vin": [
    {
      "txid": "c6de60427b28d8ec8102e49771e5d0348fc3ef6a5bf02eb864ec745105a6951b",
      "vout": 0,
      "scriptSig": {
        "asm": "",
        "hex": ""
      },
      "sequence": 4294967295
    }
  ],
  "vout": [
    {
      "value": 0.00006500,
      "n": 0,
      "scriptPubKey": {
        "asm": "OP_HASH160 a5d106eb8ee51b23cf60d8bd98bc285695f233f3 OP_EQUAL",
        "hex": "a914a5d106eb8ee51b23cf60d8bd98bc285695f233f387",
        "reqSigs": 1,
        "type": "scripthash",
        "addresses": [
          "2N8MytPW2ih27LctLjn6LfLFZZb1PFSsqBr"
        ]
      }
    }
  ]
}

$ signedtx=$(bitcoin-cli -named signrawtransactionwithwallet hexstring=$rawtxhex | jq -r '.hex')
$ bitcoin-cli -named sendrawtransaction hexstring=$signedtx
b164388854f9701051809eed166d9f6cedba92327e4296bf8a265a5da94f6521

As you can see, there was nothing unusual in the creation of the transaction, and it looked entirely normal, albeit with an address with a different prefix than normal (2N8MytPW2ih27LctLjn6LfLFZZb1PFSsqBr). No surprise, as we similarly saw no difference when we sent to Bech32 addresses for the first time in §4.6.

Summary: Sending a Transaction with a Multisig

Multisig addresses lock funds to multiple private keys — possibly requiring all of those private keys for redemption, and possibly requiring just some from the set. They're easy enough to create with bitcoin-cli and they're entirely normal to send to. This ease is due in large part to the invisible use of P2SH (pay-to-script-hash) addresses, a large topic that we've touched upon twice now, with P2SH-SegWit and multisig addresses, and one that will get more coverage in the future.

🔥 What is the power of multisignatures? Multisignatures allow the modeling of a variety of financial arrangements such as corporations, partnerships, committees, and other groups. A 1-of-2 multisig might be a married couple's joint bank account, while a 2-of-2 multisig might be used for large expenditures by a Limited Liability Partnership. Multisignatures also form one of the bases of Smart Contracts. For example, a real estate deal could be closed with a 2-of-3 multisig, where the signatures are submitted by the buyer, the seller, and an escrow agent. Once the escrow agent agrees that all of the conditions have been met, he frees up the funds for the seller; or alternatively, the buyer and seller can jointly free the funds.

What's Next?

Continue "Expanding Bitcoin Transactions" with §6.2: Spending a Transaction with a Multisig.