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Advanced Protocols

Bitcoin Script enables powerful transaction patterns beyond simple payments. These building blocks are the foundation of more complex applications like Lightning, exchanges, and collaborative custody.

Multisig​

Multisig (multi-signature) requires multiple private keys to authorize a transaction. This is fundamental to collaborative custody and organizational wallets.

M-of-N Multisig​

An M-of-N scheme requires M signatures out of N total keys:

SetupUse Case
2-of-3Personal security (you hold 2 keys, backup service holds 1)
3-of-5Corporate treasury (requires majority approval)
2-of-2Lightning payment channels
1-of-2Shared access (either party can spend)

Implementation Approaches​

  • P2SH multisig — Legacy, limited to 15 keys
  • P2WSH multisig — SegWit, more efficient
  • MuSig2 (Taproot) — Key aggregation, looks like a single-sig on-chain (better privacy and lower fees)

PSBT Multisig Workflow​

1. Creator builds unsigned transaction (PSBT)
2. Send PSBT to Signer A → signs with their key
3. Send partially-signed PSBT to Signer B → signs with their key
4. Combiner merges signatures
5. Finalizer completes the transaction
6. Broadcast

Timelocks​

Timelocks restrict when a transaction can be confirmed:

Absolute Timelocks (CLTV)​

OP_CHECKLOCKTIMEVERIFY prevents spending before a specific block height or timestamp:

# Can't spend before block 800000
OP_CHECKLOCKTIMEVERIFY OP_DROP <pubkey> OP_CHECKSIG

Use cases: Trust fund releases, scheduled payments, dead man's switches

Relative Timelocks (CSV)​

OP_CHECKSEQUENCEVERIFY prevents spending until a certain number of blocks have passed since the UTXO was created:

# Can't spend until 144 blocks (~1 day) after creation
OP_CHECKSEQUENCEVERIFY OP_DROP <pubkey> OP_CHECKSIG

Use cases: Lightning commitment transactions, revocation paths, cooling-off periods

Atomic Swaps​

Atomic swaps enable trustless exchange of cryptocurrencies across different blockchains using Hash Time-Locked Contracts (HTLCs).

How HTLCs Work​

If either party disappears, the timelocks ensure funds are returned.

Submarine Swaps​

Submarine swaps exchange on-chain Bitcoin for Lightning payments (or vice versa):

  • On-chain → Lightning: Pay an on-chain HTLC, receive a Lightning payment
  • Lightning → On-chain: Pay a Lightning invoice, receive an on-chain UTXO

Services like Boltz facilitate submarine swaps.

Covenants​

Covenants restrict how a UTXO can be spent (not just who can spend it). They're an active area of research:

ProposalMechanism
OP_CTV (BIP-119)Commit to the exact transaction that spends the output
OP_VAULTPurpose-built vault construction
OP_CATEnable arbitrary covenant logic via script composition

Use cases: Vaults (delayed withdrawals with clawback), congestion control, payment pools

CoinJoin​

CoinJoin is a privacy technique where multiple users combine their transactions:

  1. Multiple users provide inputs
  2. A coordinator constructs a transaction with uniform outputs
  3. Each user signs their inputs
  4. The combined transaction is broadcast

Tools: Joinmarket, Wasabi Wallet