Exploring Collaborative and Community Custody Models for Bitcoin

There are different types of custody models. However, each model addresses the single-point-of-failure problem differently. 

Collaborative custody expands those models by distributing control across multiple keys and reducing vulnerability to a single point of failure. 

Community custody is part of the broader family of collaborative custody. What makes it different is who takes on that responsibility, and for whom. In community custody, trusted individuals called Guardians share custody. The Guardians hold the keys on behalf of the community, and no single Guardian can move funds alone. 

In this article, we’ll explore both collaborative custody and community custody as options to store your bitcoin and what changes when custody moves from individual collaboration to collective responsibility. 

How Does Collaborative Custody Work?

Collaborative custody shares the responsibility to secure bitcoin across multiple people or keys. This is achieved through a multisig arrangement, which requires a threshold of keys to approve a transaction. Through this arrangement, collaborative custody avoids the single point of failure problem. 

This would look like:

1. A multisig Bitcoin wallet is created with multiple keys.

2. The keys are distributed between the user and one or more participants, which in this case could be the custody provider, family member, or trusted third party.

3. Bitcoin is deposited into the multisig wallet.

4. A predefined threshold of keys must approve a transaction before the bitcoin moves.

5. Losing or compromising one key does not result in losing the bitcoin. This depends on the predefined threshold. 

For example, a 2-of-3 setup has three keys and requires any two to approve a transaction. In some collaborative custody models, the user holds two keys while a provider holds the third. This lets the user move their bitcoin independently while the provider’s key serves as a backup. 

The defining idea is shared responsibility. Collaborative custody distributes key management so security does not depend on a single key or participant. 

How Does Community Custody Work?

With the community custody model, Guardians are selected to hold the keys on behalf of the community and a Federation is created in the process. Fedimint is an open source protocol designed to support this model of custody. 

The basic structure looks like this:

1. A group of Guardians operates a Federation.

2. The Guardians collectively control a threshold multisig Bitcoin wallet.

3. Users deposit bitcoin into the Federation.

4. In return, users receive ecash representing funds the Federation holds.

5. A sufficient threshold of Guardians must cooperate for the Federation to move the underlying bitcoin.

Fedimint's ecash system also provides privacy. Ecash uses blind signatures, so Guardians do not have a ledger showing which user owns each individual ecash note or linking payments between users.

The result is a system designed for both holding bitcoin and making private, fast, inexpensive payments. And the interface through which you can make use of your Federation is Fedi.

Where Does Community Custody Fit Within Collaborative Custody?

Community custody isn't separate from collaborative custody. It is one approach within the broader collaborative-custody family.

Collaborative custody distributes responsibility for bitcoin across multiple parties. Multisig is perhaps the best-known example.

Services such as Casa and Unchained have built collaborative custody models around this approach. The user typically remains part of the signing arrangement and retains responsibility for at least one key.

For people who want direct involvement in securing their bitcoin and have the ability to manage their part of a multisig setup.

Community custody applies the threshold principle differently.

Instead of requiring every user to participate in the underlying multisig, a group of Guardians operates it on behalf of the community.

In collaborative multisig, you are typically one of the keyholders, while in community custody, you are not.

That distinction defines where community custody sits within the broader collaborative-custody family.

A Different Way to Think About Bitcoin Custody

Choosing the best way to store bitcoin means deciding where you want control and responsibility to sit. While collaborative custody established the broader principle that control over bitcoin must not rest with one person, community custody applies that principle to groups, with trusted Guardians taking responsibility through a Federation. 

You choose how you want the keys to your bitcoin distributed. Community custody gives communities another option to hold bitcoin together without placing control over the bitcoin into the hands of one person or institution. It broadens what collaborative custody looks like when the unit being protected is a community rather than an individual.