How Liana Wallet and Miniscript Revolutionize Bitcoin Self-Custody, Quorums, and Backup Strategies

How Liana Wallet and Miniscript Revolutionize Bitcoin Self-Custody, Quorums, and Backup Strategies

Bitcoin self-custody requires users to carefully balance security, redundancy, and usability. Traditional methods often force trade-offs between these aspects, which can lead to either increased risk of loss or increased complexity in managing funds. The introduction of Liana Wallet and Miniscript offers a more flexible and secure approach, fundamentally changing Bitcoin self-custody.

The Challenges of Traditional Bitcoin Wallets

Single-Signature (Single-Sig) Wallets

Single-sig wallets are the simplest form of Bitcoin custody, where one private key controls the funds. However, they come with significant risks:

• Security Risk: If someone discovers your seed phrase, they gain full control over your funds.
• Loss Risk: If you lose your wallet & your seed phrase, you lose access to your funds permanently.

Using a BIP39 passphrase can mitigate some security risks by adding an additional layer of protection. Even if someone finds the seed phrase, they cannot access your funds without the passphrase. However, this solution does not solve governance issues, where shared control and decision-making among multiple parties are required. For this, a multisig setup is needed.

Multisig Wallets

Multisig (multi-signature) wallets require multiple keys to authorize transactions, enhancing both security and redundancy. A typical configuration is 2-of-3, meaning two out of three keys are needed to spend funds. This setup provides several benefits:

• Redundancy: If one key is lost, the funds are still accessible using the other keys.
• Governance: Multisig wallets enable shared control, which is vital for organizations or joint ownership scenarios.

However, multisig comes with its own complexities: Increased Backup Complexity: Multisig setups require multiple key backups, as well as a wallet descriptor backup that contains essential information like the quorum and public keys. Each key and the descriptor must be backed up using the 3-2-1 method—three copies stored on two different types of media, with one copy stored offsite. For instance, in a 2-of-3 multisig setup, this results in three separate key backups and a descriptor backup, each needing to be securely stored according to the 3-2-1 rule. This significantly increases the complexity and demands of the backup process.

How Liana Wallet and Miniscript Change the Landscape

Liana Wallet, powered by Miniscript, represents a significant advancement in Bitcoin wallet technology. But what exactly are Liana Wallet and Miniscript, and how do they address the challenges posed by traditional wallet setups? Liana Wallet is a Bitcoin wallet designed to offer enhanced security and flexibility. It leverages advanced scripting to allow users to define complex spending conditions, making it easier to manage funds in a secure and customizable way. This wallet bridges the gap between the simplicity of single-signature wallets and the enhanced security of multisig setups. Miniscript is a simplified scripting language for Bitcoin that makes creating and managing complex spending rules more intuitive and accessible. It allows for the design of sophisticated, yet easy-to-understand, policies for how funds can be spent and recovered, enabling more nuanced control over Bitcoin transactions. Together, Liana Wallet and Miniscript offer solutions to the limitations of traditional wallet setups by providing a flexible, user-friendly way to manage Bitcoin security. This combination allows users to enjoy the security benefits of multisig without the associated complexity and reduces the risks inherent in single-sig wallets by offering more advanced recovery and backup options.

1. Time-Locked Recovery Paths

Liana allows users to set up time-locked recovery paths. This feature enables you to create a wallet with a primary spending path that uses no traditional backups (e.g., a single hardware wallet like Ledger). However, if the primary key is lost or compromised, a secondary recovery path, which must use a different seed, can be activated after a specified period of inactivity.

Example: Consider using a Ledger hardware wallet as your primary device without backing up its seed phrase to reduce the risk of theft. Instead, you set up a recovery path with a different seed that activates after six months of inactivity. To recover funds, you will need both the recovery seed and the wallet descriptor, which can be stored in a tamper-evident bag within a non-transparent envelope to prevent scanning. It’s essential to check the backup at least once during the timelock period. After verifying the integrity of your backup (and the tamper-evident bag), you should renew the timelock by spending from expiring UTXOs or performing a “self-transaction,” which effectively resets the timelock.

2. Enhanced Multisig Configurations

Miniscript allows for complex multisig setups that balance security and redundancy. For example, you can have a 2-of-2 multisig wallet with a time-locked single signature or a 1-of-2 or 2-of-3 recovery path. This setup ensures strong security while maintaining redundancy in case a key is lost.

Example: Imagine a 2-of-2 multisig wallet where you and a co-signer must both approve transactions. Typically, losing one key would make funds inaccessible. However, with Miniscript, you can set up a time-locked single signature or a 1-of-2 recovery path that activates after a set period, ensuring funds remain accessible even if a key is lost.

The Role of SafetyNet in Liana Wallet

Liana’s SafetyNet feature further enhances security by allowing users to set up professional backup services as a last-resort recovery mechanism. SafetyNet ensures that even if all other recovery options fail, you can still access your funds through a trusted third-party service.

How SafetyNet Works:

• Hodling SA: As the first provider of SafetyNet services, Hodling SA (hodling.ch) can hold a backup key under strict conditions. This key is typically timelocked, meaning it becomes usable only after prolonged inactivity, minimizing the risk of unauthorized access.
• Multi-Institutional Recovery: For even greater security, users can opt for a multi-institutional recovery setup using multiple SafetyNet providers, such as a 2-of-3 multisig configuration. This ensures no single entity has full control, adding an extra layer of protection.

The Role of Tamper-Evident Bags in Seed Security

Tamper-evident bags are essential for securely storing seed phrases and wallet descriptors. These bags are designed to show visible signs if someone attempts to open them, providing a way to detect unauthorized access.

Best Practices:

• Non-Transparent Envelope: Place the seed phrase in a non-transparent envelope before sealing it in a tamper-evident bag to prevent scanning.
• Regular Checks: Periodically check the integrity of the tamper-evident bag, especially during the timelock period, to ensure that the backup remains secure.

Implementing the 3-2-1 Backup Strategy

To safeguard your wallet’s keys and descriptor, follow the 3-2-1 backup strategy:

• Three Copies: Create three copies of your seed phrases and wallet descriptors. One of these can be the hardware wallet itself.
• Two Different Media: Store backups on two different media types, such as paper and metal, which are durable and less susceptible to environmental damage. Avoid cloud, online backups, or any phone/computer storage for seed backups, as these methods increase the risk of compromise. Some hardware wallets, like the BitBox02, offer encrypted microSD backups, which are acceptable but should not replace traditional paper/metal backups.
• One Offsite Location: Store one backup in a secure offsite location, preferably more than 80 km away from your primary location, to protect against natural disasters or localized threats.

Conclusion

Liana Wallet and Miniscript offer significant advancements in Bitcoin self-custody by providing flexible, secure solutions for managing the complex trade-offs between security and redundancy. By integrating time-locked recovery paths, advanced multisig setups, and the innovative SafetyNet feature, users can maintain high levels of security while ensuring that their funds remain recoverable in nearly any scenario. Adding SafetyNet as a last-resort recovery path provides an additional layer of security, ensuring that even if all personal recovery paths fail, the funds remain accessible through trusted third-party services.

When combined with physical security measures like tamper-evident bags and a robust 3-2-1 backup strategy, Liana Wallet and Miniscript offer a comprehensive, resilient approach to Bitcoin self-custody that balances security with accessibility. This not only makes it safer to secure large amounts of Bitcoin but also empowers users to take control of their digital assets in ways that were previously difficult or impossible with traditional wallet setups.

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